Are subsidies enough to encourage the uninsured to purchase health insurance? An analysis of underlying behavior.

A growing concern over gaps in health insurance coverage has led to proposals for reform. Some proposals rely on incentives to encourage the purchase of private health insurance, while others rely on mandatory purchase. This paper explores families' demand for private health insurance, with an emphasis on lower income families, in order to understand the factors that affect purchasing decisions. The study uses data from the 1977 National Medical Care Expenditure Survey to show which factors are important in determining whether or not families purchase private health insurance as well as the quantity of insurance purchased. Results indicate that it is the combination of income, price, and substitutes for private health insurance that impact families' decision to purchase private health insurance. As long as a safety net of substitutes exists for low-income families, subsidies may not be enough to encourage more extensive private health insurance coverage.