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De La Salle University- Manila

School of Economics
Economics Department



An Empirical Analysis on Determinants of A Person That Is
More Likely To Have Insurance



An Empirical Paper
Submitted to Mr. Chris Cabuay




In Partial Fulfilment
Of the Requirements in
LBYMET2 V24





Centeno, Alexander M.
June 23, 2014







I. Introduction
Insurance is now very important to the world because of everyday hazards and risks of losses
that could occur such as car accidents, robbery, or even death of a family. This is why a lot of people are
now considering buying insurance for the safety of themselves and also for their family. Everyone
deserves insurance in order to feel safe and to feel comfortable at their own homes and around their
assets. But when is a person more inclined to have a health insurance. We need to look at what factors
make a person more probable of having insurance and the reason behind it. In order to look at this
study better, these are the variables used, household income, years of education, married, and good
health status. With these variables, with the use of software programs of STATA and Gretl to get
econometric results within logit and probit models and then with its marginal effects, we can tell which
people have higher chances of having health Insurance.
Objectives
To know what factors influences if someone has insurance or not. The objectives of this empirical
analysis are as follows:
- To know whether household income influences if someone has insurance or not
- To know whether years of education influences if someone has insurance or not
- To know whether a married couple influences if someone has insurance or not
- To know whether having a good healthy status if someone has insurance or not
II. Conceptual and Operational Framework of the Study
- Prospect Theory

Also known as the Loss-Aversion Theory. This theory made by Kahneman and Tversky is all
about managing risk and uncertainty. It is also about a perspective on losses and gains in which
in any case, attaining more benefits would be the most obvious and profitable choice. This
connects with how insurance companies would likely screen their customers. If they would sell
insurance to a customer, they would likely sell it to a person who would not deal losses or debts
to their company, so that they could attain more rewards to maximize profits.

- Willingness to Accept/Pay

This is the amount of a person or an individual would be willing to receive payment in order to
exchange a good or a service. This concept is also affiliated with its counterpart of willingness to
pay, wherein an individual would be willing to pay for a good or service. The gap between them
is also called the endowment effect. To insurance companies, they would be more willing to
accept their possible customers through their screening process so that the customer who has
the willingness to pay would be accepted with their insurance. Of course insurance companies
would also think that they would have willingness to accept as long as their losses are
minimized.





III. Results and Discussion
Results using software programs Stata and Gretl with its function of Logit
Results from Stata:
Iteration 0: log likelihood = -2139.7712
Iteration 1: log likelihood = -2008.6351
Iteration 2: log likelihood = -2007.8731
Variable A-priori sign Variable Definition or Economic intuition
Dependent
Ins Ins is known as the Health Insurance.
Insurance is the product or service wherein it
provides protection against losses.
Independent
Hhincome
+
Hhincome is known as the household income.
As household income increases, they are more
likely to have health insurance because since
they have more income attained then there
are more plan options for purchasing from the
insurance company and they can afford
insurance.
Educyear
+
Educyear is known as the years of education.
As Educyear is increasing then, they are more
likely to have health insurance because with
higher levels of education through years of
education then they are more likely employed
for a better status of paying for insurance. Also
with higher education, it could lead to better
employment, which would reduce health costs
for the insurance company since better
education teaches healthier lifestyles
Married
+
Married is known as the variable for a married
couple. It is more likely that a married
couple/family has health insurance because a
married couple or family are more responsible
adults who lessen the risk of behaving in
danger or in a hazard environment. Also they
would want a insured life for a better living
lifestyle through out time
hstatusg
+
Hstatusg is known as the good health status of
a person or an individual. They are more likely
to have health insurance since they are
healthy, the insurance companies would
always have them insured for health costs to
have better lifestyles
Iteration 3: log likelihood = -2007.873
Logistic regression Number of obs = 3206
LR chi2 (4) = 263.80
Prob > chi2 = 0.0000
Log likelihood = -2007.873 Pseudo R2 = 0.0616

------------------------------------------------------------------------------
ins | Coef. Std. Err. z P>|z| [95% Conf. Interval]
-------------+----------------------------------------------------------------
hhincome | .0022105 .0007584 2.91 0.004 .000724 .0036969
educyear | .1309001 .0136306 9.60 0.000 .1041846 .1576156
married | .5881571 .0920586 6.39 0.000 .4077256 .7685885
hstatusg | .3125295 .0897494 3.48 0.000 .1366239 .488435
_cons | -2.815063 .1776129 -15.85 0.000 -3.163177 -2.466948

Marginal effects after logit

y = Pr (ins) (predict)
= .37609799
------------------------------------------------------------------------------
variable | dy/dx Std. Err. z P>|z| [ 95% C.I. ] X
---------+--------------------------------------------------------------------
hhincome | .0005187 .00018 2.91 0.004 .000169 .000868 45.2639
educyear | .0307155 .00318 9.67 0.000 .024492 .036939 11.8986
married*| .1321457 .01953 6.77 0.000 .093867 .170425 .733001
hstatusg*| .072 .02022 3.56 0.000 .032366 .111634 .704616
------------------------------------------------------------------------------
(*) dy/dx is for discrete change of dummy variable from 0 to 1

Even with the mfx command, they are still probable to have health insurance, which means that even
with marginal effects they still have a high chance of having health insurance.






Results from Gretl:

Model 6: Logit, using observations 1-3206
Dependent variable: ins
Standard errors based on Hessian
Coefficient Std. Error z p-value
const -2.81506 0.177613 -15.8494 <0.00001 ***
hhincome 0.00221048 0.000758408 2.9146 0.00356 ***
educyear 0.1309 0.0136306 9.6034 <0.00001 ***
married 0.588157 0.0920586 6.3889 <0.00001 ***
hstatusg 0.31253 0.0897494 3.4822 0.00050 ***

Mean dependent var 0.387087 S.D. dependent var 0.487160
McFadden R-squared 0.061641 Adjusted R-squared 0.059305
Log-likelihood -2007.873 Akaike criterion 4025.746
Schwarz criterion 4056.110 Hannan-Quinn 4036.631


Number of cases 'correctly predicted' = 1979 (61.7%)
f(beta'x) at mean of independent vars = 0.487
Likelihood ratio test: Chi-square(4) = 263.796 [0.0000]
From all the independent variables; household income, years of education, being a married
couple, and having a good healthy status are all significant and because of this the willingness to
accept/pay to and from insurance companies in selling their insurance to their potential customers
could vary from the independent variables. An increase in hhincome by 1, increases the probability of
having insurance by 0.00221048 %. For the other independent variables, educyear it is 0.1309%, for
married it is 0.588157, and lastly 0.31253 for hstatusg. We can see that in these numbers the highest to
affect the behaviour of having insurance, is being a married couple and we can say that this is
acceptable since being a married couple registers a family to be insured which contains more than one
person and other entities such as house or a car to be insured which makes insurance companies gain
more money, with the resentment that married couples are more responsible and would be more safety
aware of the hazards of health and lifestyle. They would always want safety first for their children, their
house, and other assets in order not to incur liabilities towards their welfare.

IV. Conclusion
In conclusion, these factors have a relationship with how people would likely have insurance or
not. Insurance companies would always choose using the prospect theory, to gain more income than to
incur losses given the risks. With willingness to pay/accept people would likely get insurance in order
not to incur losses or liabilities in their lives. A lot of people would also want themselves to be healthy
so they would rather get insurance to reduce the risk of paying with their own cash that would be
incurring a loss. Overall, even with good results, there can be better other indicators or variables that
can be used for telling if a person or family has insurance for various different reasons.


V. References
Baum, S., Ma, J., & Payea, K. (n.d.). College Board. Education Pays 2013 The Benefits of Higher Education
for Individuals and Society. Retrieved June 20, 2014, from
http://trends.collegeboard.org/sites/default/files/education-pays-2013-full-report.pdf
Bundorf, K, Bradley Herring, Mark V. Pauly, HEALTH RISK INCOME, AND THE PURCHASE OF PRIVATE
HEALTH INSURANCE, ERIU Working Paper 29. Available at http://
www.umich.edu/`eriu/pdf/wp29.pdf
Desersiers, Marc-Andre. How Individuals Purchase Insurance: Going Beyond Expected Utility .Casualty
Actuarial Society E-Forum, Theory.Winter2012-Volume2, Retrieved from
http://www.casact.org/pubs/forum/12wforumpt2/Desrosiers.pdf
Eckles,D., & Wise, J. Prospect Theory and the Demand for Insurance. Retrieved June 20,2013, from
http://www.aria.org/rts/proceedings/2012/New2012Papers/Prospect%20Theory%20and%20th
e%20Demand%20for%20Insurance.pdf
Finesse, F. (2012, July 11). How High-Income Earners Can Protect Themselves From Rising Taxes. Forbes.
Retrieved June 20, 2014, from http://www.forbes.com/sites/financialfinesse/2012/07/11/how-
high-income-earners-can-protect-themselves-from-rising-taxes/
Fronstin, Paul, The Relationship Between Income and Health Insurance: Rethinking the Use of Family
Income in the Current Population Survey. EBRI Notes, Vol. 26, No. 2, February 2005. Available at
SSRN:http://ssrn.com/abstract=679032
Grimes, G. (n.d.). HowStuffWorks "How does getting married affect your auto
insurance?". HowStuffWorks. Retrieved June 20, 2014, from
http://money.howstuffworks.com/personal-finance/auto-insurance/marriage-affect-auto-
insurance.htm
Health Insurance and High Income Families. (n.d.). Health-Insurance.org. Retrieved June 20, 2014, from
http:/http://www.health-insurance.org/high-income
How does getting married affect my insurance? | NorthEast Insurance Services. (n.d.). How does getting
married affect my insurance? | NorthEast Insurance Services. Retrieved June 20, 2014, from
http://www.northeastins.com/research-center/real-life-situations/getting-married-or-engaged
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insurance/default.asp
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no.2 (2002):31-46 doi: 10.1377/hlthaff.21.2.31
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http://www.ifw-members.ifw-kiel.de/publications/insurance-demand-under-prospect-theory-a
-graphical-analysis/KWP1764.pdf
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Watkins, T. (n.d.). Kahneman and Tversky's Prospect Theory. Kahneman and Tversky's Prospect Theory.
Retrieved June 20, 2014, from http://www.sjsu.edu/faculty/watkins/prosp


















VI. Appendix



This is only 60 from 3206 observations used for the analysis. The whole data set can be retrieved Health
and Retirement Study, wave 5 (2002), gathered by the National Institute of Aging.
31 0 0 1.34 13 0
32 0 1 1.344 10 0
33 0 1 1.544 3 0
34 0 0 1.68 3 0
35 0 0 1.824 0 1
36 0 0 2.06 12 0
37 0 0 2.136 12 0
38 0 0 2.304 12 0
39 0 1 2.34 6 0
40 0 0 2.364 3 0
41 0 0 2.436 8 1
42 0 0 2.725 10 0
43 0 0 2.76 2 0
44 0 0 2.8 11 0
45 0 0 2.802 11 0
46 0 0 2.88 3 0
47 0 0 3.05 8 0
48 0 1 3.154 6 0
49 0 0 3.18 14 0
50 0 0 3.36 5 1
51 0 1 3.36 7 1
52 0 0 3.456 12 0
53 0 0 3.576 10 0
54 0 0 3.6 13 0
55 0 0 3.648 3 1
56 0 1 3.672 17 1
57 0 0 3.72 12 0
58 0 0 3.804 11 0
59 1 1 3.804 12 1
60 0 1 3.816 12 0


ins hstatusg hhincome educyear

married
1 0 0 0 12 0
2 0 0 0 12 0
3 0 1 0 13 0
4 0 0 0 10 0
5 0 0 0 9 0
6 0 1 0 12 1
7 0 0 0 5 1
8 0 0 0 11 0
9 0 0 0 14 0
10 0 0 0.101 12 0
11 0 0 0.12 11 0
12 1 1 0.124 12 0
13 0 0 0.2 10 1
14 0 0 0.2 10 1
15 0 0 0.24 8 0
16 0 0 0.396 14 0
17 1 1 0.4 14 0
18 1 1 0.5 16 0
19 0 0 0.528 8 0
20 1 1 0.6 9 0
21 0 0 0.7 12 1
22 0 0 0.7 10 1
23 0 1 0.768 12 0
24 0 1 0.78 9 0
25 0 0 0.912 5 0
26 0 0 1 9 1
27 0 0 1.02 7 1
28 0 0 1.116 4 0
29 0 1 1.248 0 0
30 0 0 1.26 6 1