Skip to main content

Advertisement

SpringerLink
Log in

A net present value approach to health insurance choice

  • Published:
Decisions in Economics and Finance Aims and scope Submit manuscript

Abstract

In light of increasing health expenditure and following an economic crisis, the ADSE system (a health insurance system exclusive for the Portuguese civil servants) introduced a new policy where members were allowed to leave the system, and also for new employees to opt out. This decision, however, was permanent, and, as it will be shown, far from trivial. The aim of this study is to provide some indications on the total costs of both the ADSE and a private health insurance plan over the working life of an individual, taking into account certain life-changing events such as marriage and children. The choice is made based on the net present value of these total costs, and it is rational from a financial perspective. Because such a permanent decision is highly dependent on the assumptions made, a sensitivity analysis to certain variables, in particular, income, prices of medical treatments and frequency of use, is performed in order to discover the break-even point, that is, the value at which the individual would be indifferent between the two options.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Fig. 1
Fig. 2
Fig. 3

Similar content being viewed by others

References

  • ADSE: Relatório de Atividades. Technical report, Direção-Geral de Proteção Social aos Trabalhadores em Funções Públicas (2014)

  • ADSE: Relatório de Atividades. Technical report, Direção-Geral de Proteção Social aos Trabalhadores em Funções Públicas (2015)

  • ADSE: Relatório de Atividades. Technical report, Direção-Geral de Proteção Social aos Trabalhadores em Funções Públicas (2016)

  • Akerlof, G.A.: The market for “Lemons”: quality uncertainty and the market mechanism. Q. J. Econ. 84(3), 488–500 (1970)

    Article  Google Scholar 

  • Alemayehu, B., Warner, K.E.: The lifetime distribution of health care costs. Health Serv. Res. 39(3), 627–642 (2004)

    Article  Google Scholar 

  • Almeida, A., Pereira, N., Oliveira, S.: ADSE: Que futuro? (2015)

  • Aron-Dine, A., Einav, L., Finkelstein, A.: The RAND health insurance experiment, three decades later. J. Econ. Perspect. 27, 197 (2018)

    Article  Google Scholar 

  • Beaulieu, N.D.: Quality information and consumer health plan choices. J. Health Econ. 21, 43–63 (2002)

    Article  Google Scholar 

  • Bhargava, S., Loewenstein, G., Sydnor, J.: Do individuals make sensible health insurance decisions? Evidence from a menu with dominated options (2015)

  • Buckley, N.J., Cuff, K., Hurley, J., Mcleod, L., Nuscheler, R., Cameron, D., Buckley, N.J., Cuff, K., Hurley, J., Mcleod, L., Nuscheler, R., Cameron, D.: Willingness-to-pay for parallel private health insurance: evidence from a laboratory experiment. Can. J. Econ./Revue canadienne d’Economique 45(12), 137–166 (2012)

    Article  Google Scholar 

  • Cardon, J.H., Hendel, I.: Asymmetric information in health insurance: evidence from the national medical expenditure survey. Rand J. Econ. 32(3), 408–427 (2001)

    Article  Google Scholar 

  • Carreras, M., Ibern, P., Coderch, J., Sánchez, I., Inoriza, J.M.: Estimating lifetime healthcare costs with morbidity data. BMC Health Serv. Res. 13(1), 440 (2013)

    Article  Google Scholar 

  • Corso, P., Finkelstein, E., Miller, T., Fiebelkorn, I., Zaloshnja, E.: Incidence and lifetime costs of injuries in the United States. Inj. Prev. J. Int. Soc. Child Adolesc. Inj. Prev. 12(4), 212–8 (2006)

    Article  Google Scholar 

  • Forget, E.L., Roos, L.L., Deber, R.B., Walld, R.: Variations in lifetime healthcare costs across a population. Healthcare policy = Politiques de sante 4(1), e148–e167 (2008)

    Article  Google Scholar 

  • Friedman, B.: Risk aversion and the consumer choice of health insurance option. Rev. Econ. Stat. 56(2), 209–214 (2016)

    Article  Google Scholar 

  • Gruber, J., Poterba, J.: Tax incentives and the decision to purchase health insurance: evidence from the self-employed. Q. J. Econ. 109(3), 701–733 (1994)

    Article  Google Scholar 

  • Kairies-Schwarz, N., Kokot, J., Vomhof, M., Weßling, J.: Health insurance choice and risk preferences under cumulative prospect theory-an experiment. Journal of Economic Behavior & Organization 137, 374–397 (2017)

    Article  Google Scholar 

  • Kerssens, J., Groenewegen, P.: Consumer preferences in social health insurance. Eur. J. Health. Econom. 50, 8–15 (2005)

    Article  Google Scholar 

  • Manning, W.G., Newhouse, J.P., Duan, N., Keeler, E.B., Leibowitz, A., Susan Marquis, M.: Health insurance and the demand for medical care: evidence from a randomized experiment. Am. Econ. Rev. 7711740(3), 251–277 (1987)

    Google Scholar 

  • Nakagawa, F., Miners, A., Smith, C.J., Simmons, R., Lodwick, R.K., Cambiano, V., Lundgren, J.D., Delpech, V., Phillips, A.N.: Projected lifetime healthcare costs associated with HIV infection. PLoS ONE 10(4), e0125018 (2015)

    Article  Google Scholar 

  • Pitacco, E.: The individual perspective: the need for health insurance. In: Health Insurance, Chapter 2, pp. 1–10. Springer, Berlin (2014)

  • Schram, A., Sonnemans, J.: How individuals choose health insurance: an experimental analysis. Eur. Econ. Rev. 55, 799–819 (2011)

    Article  Google Scholar 

  • Sinaiko, A.D., Hirth, R.A.: Consumers, health insurance and dominated choices. J. Health Econ. 30, 450–457 (2011)

    Article  Google Scholar 

  • Strombom, B.A., Buchmueller, T.C., Feldstein, P.J.: Switching costs, price sensitivity and health plan choice. J. Health Econ. 21, 89–116 (2002)

    Article  Google Scholar 

  • Tamm, M., Tauchmann, H., Wasem, J., Greß, S.: Elasticities of market shares and social health insurance choice in germany: a dynamic panel data approach. Health Econ. 16(3), 243–256 (2007)

    Article  Google Scholar 

  • Thomson, S., Dixon, A.: Choices in health care: the European experience. J. Health Serv. Res. Policy 11(3), 167–171 (2006)

    Article  Google Scholar 

  • van Baal, P.H.M., Polder, J.J., de Wit, G.A., Hoogenveen, R.T., Feenstra, T.L., Boshuizen, H.C., Engelfriet, P.M., Brouwer, W.B.F.: Lifetime medical costs of obesity: prevention no cure for increasing health expenditure. PLoS Med. 5(2), e29 (2008)

    Article  Google Scholar 

  • Van Den Berg, B., Dommelen, P.V., Stam, P., Laske-Aldershof, T., Buchmueller, T., Schut, F.T.: Preferences and choices for care and health insurance. Social Sci. Med. 66, 2448 (2008)

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations

  1. DEIO, CMAFCIO, Faculdade de Ciências da Universidade de Lisboa, Lisbon, Portugal

    Raquel J. Fonseca

  2. Faculdade de Ciências da Universidade de Lisboa, Lisbon, Portugal

    Luísa Cunha

Authors
  1. Raquel J. Fonseca
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Luísa Cunha
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Raquel J. Fonseca.

Additional information

Publisher's Note

Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.

This work is supported by National Funding from FCT - Fundação para a Ciência e a Tecnologia, under the project: UID/MAT/04561/2019.

Rights and permissions

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Fonseca, R.J., Cunha, L. A net present value approach to health insurance choice. Decisions Econ Finan 43, 709–724 (2020). https://doi.org/10.1007/s10203-020-00290-y

Download citation

  • Received:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s10203-020-00290-y

Keywords

JEL Classification

Search

Navigation