Arpah Abu-Bakar, Angappan Regupathi, Syed M Aljunid
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2013 China International Conference on Insurance and Risk Management
17-20 July Kunming, China

• Motivation of the Study
• Research Objectives
• Hypotheses
• Research Methodology
• Findings
• Conclusion and Recommendations
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• Why Individual Demand?
– Most previous studies focus on household demand
• Why Malaysia?
– Different Health Care System
• Public Health Care is Widely Accessible but
• High private spending on health care [OOP cost is the highest source of financing]
– Multi-ethnicity & Multi-religion Society
3

• Why Current Empirical Evidence?
– The Government is looking for a mechanism to reduce its financing burden
• “…health financing scheme to meet health care cost.” (7 th
Malaysia Plan)
• “provide consumer with a wider choice in the purchase of health services from both the public and private sector.” (8 th
Malaysia Plan)
• Towards achieving better health through consolidation of services…between the public and private sectors (9 th
Malaysia Plan)
• Promoting private health care. (10 th Malaysia Plan)
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1. To determine the factors that affect the individual demand for private health insurance
2. To predict the likelihood of a person buying health insurance, given the person’s characteristics
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Variables
X
1
X
2
X
3
= income
= age
= gender
X
4
= race-religion
X
5
= education level
X
6
= marital status
X
7
= household size
X
8
= type of occupation
X
9
= job sector
X
10
= urban vs rural
X
11
= distance to the private hospital
X
12
= frequency of visit to inpatient and outpatient
X
13
= out-of-pocket cost
X
14
= health status
X
15
= attitude towards risk
Effect on Probability of
Purchase
+
+
Female +
Non-Muslim +
+
Married +
-
Service -
Public -
Urban +
-
+
+
NS
Risk Averse +
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• National Health & Morbidity Survey III; Cross sectional data (2006)
• Data Screening
– 34,539 respondents answered Module B, 18.8% owned some type of MHI
• Module B: Health Expenditure, Hospitalization, Private
Health Insurance
– 14,233 cases with no missing values; Split to two data set. Further split into Salaried & Non-salaried individuals
– N = 4997 to fit the model and N = 5119 to test the model
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• Unit of Analysis
– An individual who can purchase health insurance for him/herself
• Logistic Regression
◦
DV – Either own or do not own HI
◦
Base Category - Malay male individuals, not married, have good health, live in urban area.
Have tertiary education and work in the public sector.

Malays
Non-Malay Muslims
Non-Muslims
Original Categories for Race and Religion
Race
Malays
Chinese
Indians
Other Bumiputras
Others
Islam
Christianity
Buddhism
Hinduism
Others
Religion
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• Smokers vs Non
Smokers
• Safety Behaviors
Risk Attitude Scales for Safety Behaviors
Wearing
Helmet
1
Wearing
Seatbelt
1
1 2
2
1
3
1
3
1
Risk Attitude
1 – Risk Averse
2
2 – Moderate Risk Averse
3
3
2
2
3
2
3
2
3 – Risk Neutral
4
4 – Moderate Risk Taker
3 3 5 – Risk Taker
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Variables
Income
Age
Age Square
Female
Non Malay Muslim
Non Muslim
Secondary Education
Primary Education
No Education
Married
Divorcee
Widow/widower
Household Size
Non Service Sector
Private Sector Employee
Self-employed
Rural
Distance to Private Hospital
Number of In/Outpatient Visits
OOP cost
Bad Health Status
Safety Behaviour
Constant
Coefficient
Salaried
1.193**
0.143**
-0.002**
0.203*
1.171**
-0.256*
-0.871**
-0.914**
Odd Ratio
3.298
1.154
0.998
1.225
3.227
0.774
0.419
0.401
-0.734**
-0.691**
-0.122*
-11.12**
0.48
0.501
0.885
0.000
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• Classification table
– 64.6% of individuals correctly classified as owners
– 78.9% of individuals correctly classified as non-owners
• Hosmer and Lemeshow Test
– Chi-Square is not significant
• Cox & Snell’s R sq = .217; Nagelkerke
R sq = .316

Variables
X
1
= income
X
2
= age
X
3
= gender
X
4
= race-religion
X
5
= education level
X
6
= marital status
X
7
= household size
X
8
= type of occupation
X
9
= job sector
X
10
= urban vs rural
X
11
= distance to the private hospital
X
12
= frequency of visit to inpatient and outpatient
X
13
= out-of-pocket cost
X
14
= health status
X
15
= attitude towards risk
Hypothesis
+
+
Female +
Non-Muslim +
+
Married +
-
Service -
Public -
Urban +
-
+
+
NS
Risk Averse +
Actual Results
+
Not linear
Female +
Non-Muslim +
+
NS
NS
NS
Public +
NS
NS
NS
NS
NS
Risk Averse +
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Significant variables
The higher the income the more likely to purchase HI
Previous Evidence
Propper (1989); Kronik & Gilmer (1999);
Gruber & Poterba (1994); Liu & Chen
(2002)
Female was more likely to purchase HI Auerbach & Ohri (2006); Liu & Chen
(2002); Long & Marquis (2002); Marquis
& Long (1995)
Non Muslims were 3 times more likely to purchase HI
More educated individuals were more likely to purchase HI
Gruber & Poterba (1994)
Auerbach & Ohri (2006), Gruber &
Poterba(1994), Marquis et al.(2004),
Besley et al. (1999) & Dewar (1998)
Not consistent with Besley et al. (1999) Self-employed & private sector employees were less likely to purchase
HI compared to civil servants
As age increase the odd of buying HI increases
Risk Averse individual is more likely to purchase HI
Consistent with Auerbach & Ohri (2006);
Marquis et al (2006)
Pauly & Herring (2007)
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• Reduced-Form Model
• Measure the Predictive Power of the Model using the 2 nd half of the data set
• Chi-square test shows that there is a significant association between the predicted purchased of HI and the actual purchase of HI
• This model is useful for predicting potential HI buyers
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• Those who are likely to buy are high income earners, older and more educated individuals, female, non-Muslims, public servants and risk averse individuals
• Efforts to increase health insurance ownership
– Awareness program
– Programs to increase individual income level
• Using prediction model to predict health insurance potential buyers
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• Cross-sectional data
– Out-of-pocket cost
– Number of in-patient/out-patient visits
• Potential duplicate HI ownership
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 Main references
•
Propper, C. (1989). An Econometric Analysis of the Demand for
Private Health Insurance in England and Wales. Applied Economics,
21 (6), 777-792.
• Manning, W. G., Newhouse, J. P., Duan, N., Keeler, E. B., &
Leibowitz, A. (1987). Health Insurance and the Demand for Medical
Care: Evidence from a Randomized Experiment. The American
Economic Review, 77 (3), 251-277 .
•
Liu, T. C., & Chen, C. S. (2002). An Analysis of Private Health
Insurance Purchasing Decisions with National Health Insurance in
Taiwan. Social Science and Medicine, 55 , 755-774.
• Correspondence:
Arpah Abu-Bakar
Banking and Risk Management Department
College of Business, Universiti Utara Malaysia arpah@uum.edu.my
/ arpahabubakar@gmail.com
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