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PRICE ELASTICITY AND ADVERSE SELECTION IN THE DEMAND FOR SUPPLEMENTARY HEALTH INSURANCE
Author(s) -
MARQUIS M. SUSAN,
PHELPS CHARLES E.
Publication year - 1987
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/j.1465-7295.1987.tb00741.x
Subject(s) - adverse selection , economics , auto insurance risk selection , price elasticity of demand , subsidy , group insurance , incentive , insurance policy , actuarial science , probit model , purchasing , general insurance , public economics , income protection insurance , microeconomics , econometrics , market economy , operations management
Probit regression estimates show the effects of the price of insurance, anticipated medical expenditures, and other factors on reported decisions about purchasing hypothetically offered supplementary insurance policies. The demand estimates can characterize how much supplemental insurance would be purchased under different tax policies affecting health insurance purchases. Although eliminating the current tax subsidy to insurance is shown to decrease demand, the results indicate a substantial demand for supplementary insurance even in the absence of present tax incentives. However, our results on adverse selection raise concerns about the potential stability of supplemental insurance markets.