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Empirical Economics

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11.02.2019

Heterogeneous selection in the market for private supplemental dental insurance: evidence from Germany

verfasst von: Jan Michael Bauer, Jörg Schiller, Christopher Schreckenberger

Erschienen in: Empirical Economics | Ausgabe 1/2020

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Abstract

This paper analyzes the German market for supplemental dental insurance to identify selection behavior based on individuals’ private information. The rather limited underwriting by German private health insurers makes this market especially prone to selection effects. Although the standard positive correlation test does not indicate asymmetric information in this market, we conjecture that this outcome may result from sample heterogeneity when adverse and advantageous selection occur simultaneously and offset each other. Examining a large set of potential sources of selection effects, we find mainly that the holding of other supplemental health insurance policies, which is related to risk preferences, contributes to an advantageous selection in this insurance market. Our results suggest that even in the absence of a positive correlation between risk and insurance coverage, the German market for supplemental dental insurance suffers from information asymmetry, which is caused by multidimensional private information.

Vorheriger Artikel Medical providers as double agents in a universal health care system: evidence from generic pharmaceutical adoption in Taiwan

Nächster Artikel Does the rental housing market stabilize the economy? A micro and macro perspective

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Kiil (2012) discusses equity concerns in universal healthcare systems with the option to buy voluntary private health insurance.

By law, the fixed benefits can rise by 20% (30%) if there is evidence that the insured performs regular prevention and can prove yearly dental check-ups during the last 5 (10) years before treatment.

This rule applies to all but low-income SHI enrollees, who are eligible to receive the full cost of standard treatment. According to Barmer GEK, in 2012, about 9% of SHI enrollees received diagnosis-based fixed benefits covering 100% of the cost of standard treatment (Rädel et al. 2014).

Since the introduction of unisex tariffs in December 2012, gender has been prohibited for determining the premiums for private health insurance policies, such as SuppDI.

Moreover, insurers may reject applicants based on risk-related responses. For instance, some insurers reject applicants with missing teeth above a certain threshold. We will take this issue in our empirical model (Sect. 4.2) and in our robustness checks (Sect. 5.2) into account.

In addition, there is no consideration of past premium payment history, meaning that the information asymmetry from a lack of ex-ante premium differentiation preserves over time.

Further possible explanations for the lack of a positive correlation between insurance coverage and risk occurrence are discussed by Cohen and Siegelman (2010).

The Healthcare Monitor (“Gesundheitsmonitor”) is administered since 2001 by the Bertelsmann Foundation. Since 2011, the SHI fund Barmer GEK has been cooperating with the Bertelsmann Stiftung on the Healthcare Monitor.

Note that we do not use sampling weights in Table 1. When considering sampling weights, the descriptive statistics are quite similar for most variables (results available upon request).

Please note that only individuals without missing values for all variables are considered in Table 1. Thus, the number of observations in Table 1 is slightly lower.

SHI members have a financial incentive to go for regular dental check-ups because if they do so during the 5 or 10 years preceding treatment, they receive higher benefits for dental prostheses.

As the data are only cross-sectional, we cannot include characteristics related to time of contract finalization. As a proxy, we use current information from the survey. In fact, age at contract entry is decisive for risk classification; however, since the survey does not report this datum, we control for the age of the insured at time of survey. We assume this bias to be relatively small since the majority of policies were finalized after the 2004 healthcare reform.

As our survey data are from 2011, the introduction of unisex tariffs in December 2012 does not affect our analysis.

Possible answers to the correspondent survey item are “three or more times a year,” “about twice a year,” “about once a year,” “about once in two years,” or “seldom, only in pain.”

Measured by a 6-item scale from “no fear” to “panic.”

It should be noted that a positive effect of insurance coverage on the utilization of dental care is not a sufficient condition for ex post moral hazard and a related welfare loss. If insurance coverage gives individuals access to unaffordable health care (Nyman 1999), or provides incentives to use more preventive health care, an increased utilization of dental services due to insurance coverage is not inefficient.

The holding of several SuppHIs can basically be driven by the individual’s preference for insurance coverage and by supplier behavior. However, to the best of our knowledge, insurance companies do not offer discounts for individuals buying more than one SuppHI. Moreover, the share of SHI enrollees with one specific type of SuppHI varies substantially. For instance, many SHI enrollees with a SuppDI do not hold a supplemental hospital insurance (Grabka 2014). Thus, in line with Browne and Zhou-Richter (2014), we suggest that the holding of several SuppHIs is more likely to be driven by the individual’s preference for insurance.

Further examples are a SuppHI with benefits for eyeglasses, drugs, and other medication, a supplemental LTCI, a SuppHI for alternative healing methods and naturopathy, a SuppHI for cures and special medical check-ups and a SuppHI for treatment by a private physician.

Note that empirical evidence (e.g., Chen and Hunter 1996; Lang et al. 1994; Levin and Shenkman 2004) shows that dental prevention, such as periodic dental check-ups or flossing, are predominantly positively related to dental health. See Petersen (2003), for instance, for a discussion on oral disease prevention.

Testing for larger cutoffs for the variable Preference for insurance results in cell sizes of less than 10 observations.

The use of the restricted sample resolves a second issue concerning the alternative risk proxy presented in Table 5 (column 8). Specifically, the variables for dental health that we use for risk classification (e.g., missing teeth) perfectly predict whether individuals have any dental issues. Even though these observations do not get omitted by our statistical software, results remain remarkably similar between the two approaches.

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Titel: Heterogeneous selection in the market for private supplemental dental insurance: evidence from Germany
verfasst von: Jan Michael Bauer
Jörg Schiller
Christopher Schreckenberger
Publikationsdatum: 11.02.2019
Verlag: Springer Berlin Heidelberg
Erschienen in: Empirical Economics / Ausgabe 1/2020
Print ISSN: 0377-7332
Elektronische ISSN: 1435-8921
DOI: https://doi.org/10.1007/s00181-019-01632-5

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