Title: The value of fixed reimbursement insurance against cancer related losses: simulations to investigate state dependent utility

Authors: Christopher J. Longo; Michel Grignon

Addresses: Health Services Management, DeGroote School of Business, Centre for Health Economics and Policy Analysis, McMaster University, Ron Joyce Centre (#255), 4350 South Service Road, Burlington, Ontario, L7L 5R8, Canada; Dalla Lana School of Public Health, University of Toronto, 155 College Street, 6th Floor, Toronto, Ontario, M5T 3M7, Canada ' Department of Economics and Department of Health, Ageing, and Society, Centre for Health Economics and Policy Analysis, McMaster University, Kenneth Taylor Hall, 1280 Main Street West, Hamilton, Ontario, L8S 4M4, Canada

Abstract: Insurance literature discusses the theoretical role of state dependent utility (SDU), but empirical evidence is scant. Critical illness insurance (CII) is a fixed-reimbursement scheme where individuals buy a policy in case of an illness, and which provides an opportunity to empirically assess SDU motives. We investigate the potential role of SDU in CII purchasing behaviour, and propose consumers purchase CII depending on three competing factors: illness expenditures not fully covered through public and private mechanisms, forgone income due to absence or job loss, and finally desire for income transfer when sick. We run simulations using Canadian datasets of individual earnings, industry-based information on purchased CII policy reimbursement amounts, and original data on cancer expenditures. We use the residual between what is purchased through CII (face amount) and what should be purchased to cover personal health expenditures and forgone income as our estimate of an SDU-based motivation for buying CII.

Keywords: state dependant utility; health insurance; fixed reimbursement; cancer expenditure; Canada; critical illness insurance; purchasing behaviour; simulation; personal health expenditures.

DOI: 10.1504/GBER.2012.049865

Global Business and Economics Review, 2012 Vol.14 No.4, pp.322 - 337

Received: 26 Aug 2011
Accepted: 13 Feb 2012
Published online: 29 Jul 2014 *

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