The Effect of Private Health Insurance and Self-Selection Bias

As interest in health increases, private health insurance subscriptions are increasing. Many studies have been conducted to control the endogenous problem of private health insurance and usage of medical service. The change in medical expenditure after buying private medical insurance was analyzed using an instrumental variable. This study used panel data from 2011 to 2018 of the Korea Health Panel Survey. In order to control self-selection bias, which are likely to explain the increase in medical expenditure by subscribing to health-sensitive people, regression analysis was performed using an instrumental variable called the number of families. We find that joining private health insurance increases healthcare usage and ignored self-selection generates substantial downward bias in the estimates. First, the additional private health insurance increases the changes in medical expenditure by 4.8 million won per year. In addition, for specific types and types of insurance, it was analyzed that the subscription of mixed private medical insurance of cancer insurance increases the change in medical expenditure. Finally, changes in medical expenditure due to private medical insurance coverage of patients with diabetes and hyperlipidemia, which are mild chronic diseases, appeared differently. Diabetes patients subscribed to a mixed type of cancer insurance, and hyperlipidemia patients subscribed to a fixed-benefit type of general disease insurance, resulting in increased medical expenditure. The results of this study can find practical implications for the insurance company to develop insurance products.