Prevention programs and advantageous selection: Evidence for Long-Term care insurance
Résumé
Prevention programs aim to reduce health risks by encouraging changes in behavior. Asymmetric information is often proposed as an explanation of the thinness of Long-Term Care (LTC) insurance markets, and we here theoretically and empirically consider how this is affected by prevention programs. Theoretically, the trade-off between self-protection and insurance changes: it is indeterminate in general and there is no impact on insurance coverage for a fair premium. These equilibrium properties are tested empirically with French original survey data on policyholders of an insurance company, which elicit the willingness to participate in a prevention program and contain additional information on preventive behaviors. The econometric results show that ex-ante moral hazard is rather driven by individual preferences. Moreover, program participation encourages both self-protection and LTC insurance purchase: this reveals initially-unobservable advantageous selection. JEL codes: D82, I11, J14, D91
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