Adverse Selection as a Barrier to Achieving Universal Public Health Insurance Coverage in China

Area of Science:

• Health Economics
• Public Health Policy
• Insurance Market Dynamics

Background:

• Adverse selection poses a significant threat to universal health coverage.
• China's public health insurance (PHI) faces declining enrollment, consistent with adverse selection theory.
• Understanding adverse selection is crucial for the sustainability of PHI.

Purpose of the Study:

• To investigate the presence and characteristics of adverse selection in China's public health insurance market.
• To analyze the factors influencing enrollment decisions based on health risks.
• To explore the mechanisms driving adverse selection in PHI.

Main Methods:

• Utilized data from the 2020 China Family Panel Studies (CFPS).
• Employed Logit models to assess the link between hospitalization and PHI enrollment.
• Applied Bivariate Probit models to address potential moral hazard issues.

Main Results:

• A significant positive correlation exists between health risk (hospitalization) and PHI enrollment.
• Adverse selection is more pronounced in younger individuals and those with better self-rated health.
• Individuals leverage past health risk information for enrollment decisions, indicating strategic behavior.

Conclusions:

• Unrestricted enrollment in PHI can exacerbate adverse selection.
• Risk-adjusted premiums and long-term benefit designs are potential strategies to mitigate adverse selection.
• Addressing adverse selection is key to ensuring the stability and effectiveness of China's PHI system.