Subscribing to Supplemental Health Insurance in France: A Dynamic Analysis of Adverse Selection

Adverse selection, which is well described in the theoretical literature on insurance, remains relatively difficult to study empirically. The traditional approach, which focuses on the binary decision of “covered” or “not”, potentially misses the main effects because heterogeneity may be very high among the insured. In the French context, which is characterized by universal but incomplete public health insurance (PHI), we study the determinants of the decision to subscribe to supplemental health insurance (SHI) in addition to complementary health insurance (CHI). This work permits to analyze health insurance demand at the margin. Using a panelized dataset, we study the effects of both individual state of health, which is measured by age and previous individual health spending, and timing on the decision to subscribe. One striking result is the changing role of health risk over time, illustrating that adverse selection occurs immediately after the introduction of SHI. After the initial period, the effects of health risks (such as doctors’ previous health expenditures) diminish over time and financial risks (such as dental and optical expenses and income) remain significant. These results may highlight the inconsistent effects of health risks on the demand for insurance and the challenges of studying adverse selection.