Careful trade-off between risk protection and efficiency of insurances needed

We don’t fully understand insurance markets. For example, the demand for long-term care insurance falls far behind economic predictions. However, understanding of insurance markets is of great importance, as insurance is pivotal in financing healthcare.

In his PhD thesis, entitled “Consumer Decisions in Insurance Markets”, Timo Lambregts (Erasmus School of Health Policy & Management) aims to expand our understanding of insurance markets. To that end, he studies markets for voluntary long-term care insurance and the Dutch market for insured mental health care. On Thursday 28 April Timo Lambregts will be defending his thesis.

The results of Timo’s research show that there are multiple explanations for low insurance demand. First, preferences deviate from those assumed in economic models. For example, the demand for insurance is lower, when it is unknown whether the insurance will reimburse claims. Second, not everyone has the same abilities. People with greater abilities are more likely to hold insurance. And insurance holding better reflects their expected care needs. Third, insurance holding is concentrated among those who expect to need care.

What do these results tell us? In part, low insurance holding simply mirrors preferences. But in part it is also a product of inequalities in health and capabilities. Such inequalities are not easily reduced. This thesis finds that increasing decision-making abilities may increase inequalities by health. Individual mandates or other coverage requirements may do a better job at equalizing coverage. At the same time, this thesis shows that – in Dutch mental health care – coverage has a substantial impact on care use. Presumably, this effect is less pronounced for nursing home care. Still, this result emphasizes the importance of a careful trade-off between risk protection and efficiency.

Read more about Timo Lambregts’ PhD defence here.

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