Insurance Choice and Private Information: Does Knowing Lead to Acting?

Abstract

Individuals’ perceptions of their own health might deviate from what can be observed based on objective health indicators, because of biased beliefs or private information. Whether individuals act based on their private beliefs matters. Yet, it is often hard to distinguish between what individuals think about their health and how they act upon it. We analyze insurance choice quality by studying health insurance deductible choices of Dutch adults. For this, we link the Dutch Health Monitor, a health survey with more than 1 million adult participants between 2012 and 2020, with administrative data on past and future health outcomes. Individuals' beliefs about their health are predictive for health care costs, even when controlling for extensive information on prior health care use and self-reported lifestyle behaviors. This private information is used by individuals when choosing their deductible. Yet, private information is not sufficient: many people, especially older healthier individuals do not make deductible choices in line with their private health information.