Demand for private health insurance: how important is the quality gap?

Abstract Perceived quality of private and public health care, income and insurance premium are among the determinants of demand for private health insurance (PHI). In the context of a model in which individuals are expected utility maximizers, the non purchasing choice can result in consuming either public health care or private health care with full cost paid out‐of‐pocket. This paper empirically analyses the effect of the determinants of the demand for PHI on the probability of purchasing PHI by estimating a pseudo‐structural model to deal with missing data and endogeneity issues. Our findings support the hypothesis that the demand for PHI is indeed driven by the quality gap between private and public health care. As expected, PHI is a normal good and a rise in the insurance premium reduces the probability of purchasing PHI albeit displaying price elasticities smaller than one in absolute value for different groups of individuals. Copyright © 2002 John Wiley & Sons, Ltd.