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. Javier University of the Philippines School of Economics 2012 Research Conference on Microinsurance University of Twente Enschede, the Netherlands 11 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

Estimation Stage 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 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)

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