Demand for Hospital Care and Private Health Insurance in a Mixed Public-Private System: Empirical Evidence Using a Simultaneous Equation Modeling Approach

37 Pages Posted: 2 Feb 2011 Last revised: 21 Nov 2011

See all articles by Terence Chai Cheng

Terence Chai Cheng

University of Melbourne - Melbourne Institute of Applied Economics and Social Research

Farshid Vahid

Monash University - Department of Econometrics and Business Statistics

Date Written: September 2011

Abstract

This paper examines the determinants of hospital stay intensity, the decision to seek hospital care as a public or private patient and the decision to purchase private hospital insurance. We describe a theoretical model to motivate the simultaneous nature of these decisions. For the empirical analysis, we develop a simultaneous equation econometric model that accommodates the count data nature of length of stay and the binary nature of the patient type and insurance decisions. The model also accounts for the endogeneity of the patient type and insurance binary variables. The results indicate that there is no evidence of endogeneity between the decision to purchase insurance on the type and intensity of hospital care use. We find some evidence of moral hazard effects of private hospital insurance on the intensity of private hospital care. The results also indicate that the length of hospital stay for private patients is shorter than for public patients.

Keywords: Simultaneous Equation Models, Count Data, Demand for Hospital Care, Moral Hazard, Public-Private Mix

JEL Classification: I11, H42, C31, C15

Suggested Citation

Cheng, Terence Chai and Vahid, Farshid, Demand for Hospital Care and Private Health Insurance in a Mixed Public-Private System: Empirical Evidence Using a Simultaneous Equation Modeling Approach (September 2011). Melbourne Institute Working Paper No. 22/11, Available at SSRN: https://ssrn.com/abstract=1752581 or http://dx.doi.org/10.2139/ssrn.1752581

Terence Chai Cheng (Contact Author)

University of Melbourne - Melbourne Institute of Applied Economics and Social Research ( email )

185 Pelham Street
Carlton, Victoria 3053
Australia

Farshid Vahid

Monash University - Department of Econometrics and Business Statistics ( email )

Wellington Road
Clayton, Victoria 3168
Australia
+61 3 9905 2359 (Phone)

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