Examining the Marginal Access Value of Private Health Insurance

ABSTRACT According to a new theory advanced by Nyman (1999, 2003), an important access motivation underlies the demand for health insurance. However, little empirical research has attempted to quantify and explain changes in the access value of health insurance. By assuming the demand for health insurance is derived from the demand for good health, this article shows mathematically that the marginal access value of private health insurance can be reasonably indexed by dividing the price of health insurance by a composite measure of medical prices. For the period from 1960 through 2002, national data for the United States suggests that the marginal access value of private health insurance has tended to increase over time. Based upon multiple regression analysis, marginal access value is shown to have increased over time in response to rising income, more generous benefit coverage, new medical technologies, and, in recent years, the backlash against health maintenance organizations (HMOs). In addition, expansions in the Medicaid program are shown to have slowed the growth of the marginal access value of private health insurance. INTRODUCTION John Nyman (1999, 2003) recently advanced a highly provocative theory indicating that many inconsistencies riddle the conventional theory of demand for health insurance. He points out that people do not necessarily purchase health insurance to avoid risk as conventional theory suggests, but to a large degree, because of an underlying access motivation.1 Nyman notes that health insurance coverage provides financial access to medical care that some people could not otherwise afford because of their low net worth relative to the costs of many medical procedures. His theory argues that an individual gives up a premium payment (and the corresponding consumption of other goods and services) when healthy, to receive an income transfer from those who remain healthy when she becomes ill. For instance, one of his running examples pertains to the $300,000 cost associated with receiving a liver transplant. If one person out of 75,000 people in an insurance pool requires a liver transplant per year, then for a $4 fair premium payment when healthy, the insured individual potentially receives a transfer of $299,996 from 74,999 other people when ill. In Nyman's theory, access value is represented by the medical care expenditures that are beyond the consumer's liquidity constraint. Thus, Nyman (1999) measures the access value of private health insurance by examining, "the expected consumer surplus from the health-care services that would otherwise be inaccessible" (pp. 142-143). Inaccessible and unaffordable medical care services are the same in Nyman's model. However, from a practical perspective, the access value associated with health insurance might be defined in broader terms. Consumers typically choose among alternative health plans with different amounts of insurance coverage that translate into varying amounts of access, broadly defined. For instance, some components of a health plan may marginally impede or improve access to medical care. These "access" components include, but are not limited to, out-of-pocket payments, the amount and type of health-care-provider reimbursement (fee-for-service, bonuses, capitation, etc.), waiting times, and any management strategies affecting consumer and provider choices such as preauthorization, utilization review, or the existence and extensiveness of health-care-provider networks.2 Consequently, this article develops a relatively simple model to incorporate a broader measure of marginal access value into the demand for health insurance. The conceptual model incorporates access value by treating the demand for health insurance as being derived from the demand for good health. From the conceptual model, an index for marginal access value is produced. This article then uses national data and multiple regression analysis to track and explain changes in the marginal access value of private health insurance over time at the national level in the United States. …