UC Berkeley

High health care expenditures following a health shock can lead to long-term economic consequences. Health insurance has the potential to avert economic difficulties following health shocks, increase health care utilization and improve health. However, adverse selection in health insurance markets may stop voluntary health insurance markets from providing protection to most consumers without substantial regulation and subsidization. If uninsured individuals forgo valuable health care due to lack of funds, health insurance can also increase health care utilization and improve health. These potential benefits of insurance have led many developing nations to consider health insurance as a policy tool. Yet, even in developed nations, there have been few studies to measure its effectiveness.

This dissertation consists of three chapters that evaluate the SKY Micro-health insurance program in rural Cambodia. In Chapter 1 I evaluate the health and economic effects of the SKY insurance program on rural households using a randomized controlled trial. By randomizing the insurance premium we induce random variation in the likelihood of insurance take-up that allows us to estimate the causal effects of health insurance on economic outcomes, health utilization, and health outcomes.

We find that SKY insurance has the greatest impact on economic outcomes, as expected from an insurance program. For example, SKY decreased total health-care costs of serious health shocks by over 40%, and households with SKY had over one-third less debt and over 75% less health-related debt. SKY also changed health-seeking behavior, increasing use of (covered) public facilities and decreasing use of (uncovered) unregulated care. At the same time, SKY had no detectable impact on preventative care. As expected due to low statistical power, we did not find statistically significant impacts on health.

In Chapter 2 I study adverse selection into this insurance market. As part of this study I use the randomized experimental design to separate adverse selection from moral hazard. I test three implications of theories of adverse selection: that households joining are more adversely selected based on characteristics observable at the baseline; that households that purchase insurance at a high price are more adversely selected on observables than those that purchase identical coverage at a lower price; and that households that purchase at the higher price will demonstrate more adverse selection in utilization than households purchasing coverage at a lower price even after holding constant baseline characteristics ("unobservable" selection).

I find that households that purchase insurance have some characteristics consistent with higher expected health care utilization. Contrary to expectations, households paying a higher price do not demonstrate more selection on characteristics observable prior to insurance purchase. However, households that paid more for health insurance have substantially higher usage of both health centers and hospitals than households that received a discounted price, even when comparing households with similar observed baseline health. This result is consistent with substantial adverse selection based on factors we did not observe prior to insurance purchase.

In Chapter 3 I go beyond adverse selection to examine several other factors that may be influential in the purchase of SKY insurance. As insurance is a consumption-smoothing tool, risk-averse households may be more willing to purchase insurance. Households that can self-insure may be less likely to purchase insurance. Newer theories have hypothesized that budget constraints, present bias, or having little understanding of insurance may decrease the likelihood of buying insurance even for sick households. Age or gender bias may play into the decision, as may trust of Western medicine. These and other less-traditional type of selection factors may be particularly relevant in a developing country.

Contrary to informational models, we find no evidence that risk averse households are more likely to purchase SKY, and instead find evidence of the opposite. Budget constraints, quality of health facilities, and age and gender of ill household members also influence the decision to purchase insurance.