Selection on moral hazard in the Swiss market for mandatory health insurance: Empirical evidence from Swiss Household Panel data

Objectives: Moral hazard and adverse selection have been widely studied in relation to health insurance coverage choices. A related concept is that of selection on moral hazard: the tendency to select a specific coverage according to heterogeneity in behavioural responses to health insurance (i.e. utilization “slopes” associated with different levels of coverage) rather than different utilization levels. However, the extent of selection on moral hazard in different health insurance markets remains an
open empirical question. Our goal is to assess it in the context of the Swiss managed competition system, where insurers offer homogeneous insurance plans on a strictly regulated marketplace under a universal health insurance mandate.

Methods: We use a mix of data from the Swiss Household Panel and from publicly available regulatory data. To measure the extent of selection on moral hazard, we use the (log) number of doctor visits as a proxy for healthcare utilization and study the response to unexpected injury or illness, which we argue to be plausibly exogenous conditionally on contemporaneous and lagged individual characteristics. To overcome the inherent endogeneity between coverage choice and risk “types” (i.e. adverse selection), we employ an instrumental variable approach to compare responses of
individuals switching deductible to those maintaining the same level of coverage.

Results: On average, individuals switching from higher to lower deductible levels consumed more healthcare compared to individuals who had already selected the same deductible level. The difference in conditional averages between these two groups suggests responses to the health shock 12 to 25 percent stronger for the group of switchers. Analogously, individuals switching from lower to higher deductible showed milder responses to the health shock compared to “high-risk ” individuals who had already selected the lowest coverage possible.

Discussion: Our results support the mechanisms of selection on moral hazard, confirm predictions of simple models of selection on moral hazard in health insurance, and match results of previous contributions in terms of its magnitude. We discuss potential implications for the regulation of the Swiss mandatory health insurance market

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