1. Age and Choice in Health Insurance: Evidence from Switzerland
SAAN ACT Launch
Canberra, 29 November 2011
Peter Zweifel
Dept. of Economics, University of Zurich

2. Motivation
Rising health care expenditure due to more ample coverage in compulsory health insurance since 1996 in Switzerland
 higher premiums for health insurance
Political debate focuses on the cost side
Here, issues relate to the benefit side:
...What is the compensation asked by Swiss consumers for accepting more stingy contracts?
... Will such new options not be rejected by the elderly in particular?
Socioeconomic Institute
University of Zürich

3. Age and Choice Behavior
3 Hypotheses
H1: increased variance in asset "health" caused by health problems  demand for comprehensive coverage increases with age (Arrow, 1971)
H2: demand for health insurance follows the value of life over the life cycle  demand for coverage decreases beyond the age of ca. 40 (Shepard and Zeckhauser, 1984)
H3: transition to retirement causes transitory reduction in variance of "health" and in value of life  demand for coverage decreases temporarily
Socioeconomic Institute
University of Zürich

4. Discrete Choice Experiments (1)
Allow individuals to express preferences for non-marketed goods
Is based on the Random Utility Model (Luce, 1959; Manski and Lerman 1977; McFadden, 1973 and 2001)
individuals choose alternative with the highest utility (hypothetical choice)
choices are deterministic, but the researcher cannot observe all determinants of utility
Socioeconomic Institute
University of Zürich

5. Discrete Choice Experiments (2)
Comparison of utility values determined by indirect utility function (i=individual, j=product alternative)
Choice between alternatives j and 
Decomposition into a stochastic and a deterministic part
Socioeconomic Institute
University of Zürich

6. Setup of the Study (1) Sample of 1000 Swiss residents (older than 24)
Telephone survey (two contacts, in 2004)
questions on utilization of the health care system and socioeconomic variables
DCE: 10 choices per individual
(status quo vs hypothetical alternative)
Attributes considered:
annual deductible (deduct)
copayment rate (copay)
alternative treatment methods (altmed)
list of medications (generics)
restricted access to innovations (innovation)
monthly premium per capita (premium)
Socioeconomic Institute
University of Zürich

7. status quo insurance contract
Setup of the Study (2)
Example of a choice card
Which of these contracts would you choose?
premium reduction - CHF 50
premium: CHF 290/month
This alternative contract 
My current contract 
access to innovative treatments with delay of 3 years
innovation (status quo)
status quo
generics (status quo)
fewer treatments are covered
alternative medicine (status quo)
copayment: 10%
deductible: CHF 1500
deductible: CHF 230
alternative contract
status quo insurance contract
Socioeconomic Institute
University of Zürich

8. simple model, only product attributes included
Estimation strategy
Random-effects Probit specification
Model 1: Serves to check for the relevance of attributes
Model 2: Designed to capture age-specific effects
simple model, only product attributes included
controlling for all relevant socioeconomic variables (interaction terms)
Socioeconomic Institute
University of Zürich

9. standard errors (bootstrapped)
Results
Derive marginal willingness-to-pay (WTP) for Model 1
marginal WTP
(in CHF)
standard errors (bootstrapped)
deductible
copayment
-18.91
alt.med (more coverage)
12.36
generics
-13.77
innovation
-38.39
Socioeconomic Institute
University of Zürich

10. 2.97
prem*a63+
-0.81
rich
0.17
hhsize
-1.49
notreat
0.28
poor
-2.63
a63+
0.98
a2539
-0.42
sex
1.53
prem*french
-2.29
prem*a2539
zvalue 
s.e. 
 coefficient
Table 1c: Random-effects Probit estimation results (selected interactions)
Socioeconomic Institute
University of Zürich

11. WTP for age groups (all interaction terms) - evaluated at the median individual of each subgroup
marg. WTP 25-39
marg. WTP 40-62
marg. WTP 63+
deduct
-0.06
(0.04)
-0.05
(0.02)
-0.03
(0.01)
copay
-16.64
(16.00)
-30.36
(12.31)
-8.24
(6.96)
alt.med(+)
67.51
(44.88)
19.95
(10.60)
0.77
(6.38)
generics
-31.77
(22.00)
-13.81
(9.57)
-8.91
(6.90)
innov.
-54.12
(35.41)
-25.50
(11.57)
-14.10
(8.34)
Socioeconomic Institute
University of Zürich

12. Age-specific results Compensation demanded for a 20% copayment
(status quo 10%)
Compensation demanded for delayed access to innovations (3 yrs)
Socioeconomic Institute
University of Zürich

13. 3 Hypotheses with respect to age
Conclusion (1)
3 Hypotheses with respect to age
H1: increased asset variance  demand for coverage increases with age
H2: demand follows the value of life  demand for coverage decreases with age
H3: transition to retirement  demand for coverage temporarily decreases with age
H1 cannot be confirmed (contrary to popular belief)
H2 and H3 tend to be confirmed for the median individual
Socioeconomic Institute
University of Zürich

14. Conclusion (2)
Estimation results for socioeconomic groups indicate preference heterogeneity
Uniform health insurance contracts cause a welfare loss
Contracts with certain restrictions but lower premiums might be attractive also for the elderly, affording them a utility gain
Socioeconomic Institute
University of Zürich

15. References (1)
Arrow, K. (1971), Alternative approaches to the theory of choice in risk-taking situations, in: Arrow, K., Essays in the Theory of Risk-bearing, Amsterdam: North-Holland, 1-44.
Ben-Akiva, M. and S.R. Lerman (1985), Discrete Choice Analysis, Cambridge: The MIT Press.
Felder, S. (1997), Costs of dying: alternatives to rationing, Health Policy, 39:
Louvière, J.L., Hensher, D.A. and J.D. Swait (2000), Stated Choice Methods. Analysis and Applications, Cambridge: University Press.
Luce, D. R. (1959), Individual Choice Behaviour, New York: Wiley and Sons.
Manski, C. and S.R. Lerman(1977), The estimation of choice probabilities from choice based samples, Econometrica, 45(8):
Socioeconomic Institute
University of Zürich

16. References (2) McFadden (2000), Economic Choices, AER, 91(3): 351-378.
Ryan, M. and K. Gerard (2003), Using discrete choice experiments to value health care programmes: current practice and future reflections, Applied Health Economics and Health Policy, 2(1):
Samuelson, W. and R.J. Zeckhauser (1988), Status quo bias in decision making, Journal of Risk and Uncertainty, 1: 7-59.
Shepard, D.S. and R.J. Zeckhauser (1984), Survival and consumption, Management Science, 30(4):
Telser H. et al. (2004), Was leistet unser Gesundheitswesen?, Schlussbericht, Bern.
Socioeconomic Institute
University of Zürich