Utilization and Selection in an Ancillaries Health Insurance Market

I study two important aspects of the Australian private ancillaries health insurance (PAHI) market-moral hazard and self-selection. PAHI covers out-of-hospital health services including dental, optometry, physiotherapy, and chiropractic. Using instrumental variables methods, I find evidence that PAHI increases utilization, particularly for dental, physiotherapy, chiropractic, osteopathy, and acupuncture. I also find evidence of selection effects-both adverse and favorable. Several variables jointly predict a person's propensity to insure and to utilize health services. There is little evidence of self-selection based on the joint probability of different health services, which has important implications for understanding the commercial success of PAHI.