Patterns of voluntary enrolment in private vs. social health insurance in the Philippines:

Is adverse selection or moral hazard a concern?

S. Quimbo, J. Capuno, A. Kraft, C. Tan, V. Fabella, and X. JavierUniversity of the Philippines School of Economics

2012 Research Conference on MicroinsuranceUniversity of Twente

Enschede, the Netherlands11 April 2012

Study Setting

Background

• The National Health Insurance Program (NHIP) was created in 1995 and mandated to provide universal coverage by 2010

• Debate on what the true coverage rate is, but according to the NDHS (2008), NHIP coverage rate is 38 percent.

Background

• NHIP enrollment: multiple programs with varying strategies

– Formal sector (including OFWs): mandatory– Indigent: sponsored by the local and national governments– Retirees: fully sponsored by the program– Informal sector: voluntary

• The informal sector is heterogeneous, but on the average, have lower incomes.

Policy Questions

• Q1: Will the informal sector voluntarily participate in the NHIP?

• Q2: Is voluntary participation in the NHIP subject to adverse selection?

• Q3: Is the NHIP at risk for moral hazard, particularly from those who voluntarily participated?

Data

• Data from a baseline survey for a randomized experiment on NHIP premium subsidies– Funded by the Health Equity and Financial Protection in

Asia project – Philippines

• This nationally representative survey was conducted in 2010

• About 3000 households, covering over 14,000 individuals, from all regions in the country

Theoretical Frame• Stage 1 decision: to be insured or not

– With voluntary participation and imperfect information, adverse selection could be a problem

• Stage 2 decisions:

– Demand side: conditional on illness, whether to use a health care facility or not

– Supply side: what price to charge

– With imperfect information, moral hazard could be a problem on both demand and supply-sides: overutilization and/or price discrimination

EstimationStage 1 Decision:

Multinomial probit model

Pr(i) = f(income, cost of treatment, health shocks, SES) + u

I insurance options:

- Mandatory NHIP (inc. SP)- Voluntary NHIP- Private Insurance- Mandatory NHIP + Private- No insurance

Test for adverse selection:

* Will health shocks predict a higher likelihood of voluntary participation in health insurance?

Stage 2 Decisions:Heckman model

Selection Equation:

Pr(inpatient care|sick) = g(income, cost of treatment, insurance coverage, health status ) + v

Main Equation:

Hospital charges = h(cost of treatment, ability to pay including insurance) + w

Test for moral hazard:

* Will insurance status predict higher likelihood of health care utilization?* Will insurance status predict higher hospital expenditures?

Descriptive Statistics:Demand for Health Insurance (n=14,362)

Descriptive Statistics:The Informal Sector

• Defined as “those with seasonal employment or with employers that can change on a daily basis”

• 55 percent of the employed individuals belong to the informal sector

• Few have college education (10-13 percent).

• Average per capita income is 22-29 percent lower in the informal compared to the formal sector.

Descriptive Statistics:The Sick Population (n=427)

First stage decision:Demand for Health Insurance(Estimated marginal effects)

First stage decision: Demand for Health Insurance(Estimated marginal effects)

Second stage decisions:Selection Equation (inpatient care|sick)

Second stage decisions:Main Equation (Hospital Charges)

Summary of Findings• Informal sector: more likely to be uninsured, less likely to be in

voluntary NHIP

• Adverse selection: those whose households experienced health shocks were more likely to participate in voluntary NHIP

• Moral hazard (demand side): those with mandatory NHIP were more likely to be confined in a hospital

• Moral hazard (supply side): those with voluntary NHIP pay substantially more hospital fees

Policy Implications

• Need for more effective targeting by NHIP as the informal sector is systematically excluded

• Need for address adverse selection and moral hazard in order to sustain financial viability