PRICE ELASTICITY AND ADVERSE SELECTION in the DEMAND FOR SUPPLEMENTARY HEALTH INSURANCE

  • MARQUIS M
  • PHELPS C
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Abstract

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 pur- chased under different tax policies affecting health insurance purchases. Although eliminating the current tax subsidy to in- surance is shown to decrease demand, the results indicate a sub- stantial demand for supplementary insurance even in the absence of present tax incentiws. However, our results on adverse selec- tion raise concerns about the potential stability of supplemental insurance markets.

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Authors

  • M. SUSAN MARQUIS

  • CHARLES E. PHELPS

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