**1. Introduction**

The Portuguese health system is mainly described as a National Health Service (NHS), following the Beveridge tradition, with universal coverage and mandatory participation. In parallel with the NHS, there are some Bismarkean features, such as those arising from the existence of occupation-based health insurance, which are also mandatory or quasi-mandatory. On top of these two layers of health insurance coverage, there is a market for private health insurance on a voluntary basis. This insurance is both supplementary and complementary to the NHS. People may be interested in buying a health insurance policy because it gives them faster access to health care, lets them choose the provider and enjoy a better experience when admitted to a hospital, and have access to services not included in the NHS, such as dental care [1].

Over the last 6 years, health care expenditure on private VHI in Portugal as a percentage of GDP has been less than 0.5% and it has been about 5% of current health expenditure [2]. Despite this trend, voluntary private health insurance in Portugal grew by about 3.5% between 2012 and 2015 [3].

The insurance market is characterized by asymmetric information [4, 5] expressed by moral hazard [6] and by adverse selection [7]. A moral hazard happens after the insurance contract has been signed and it refers to the situation where the insured person uses more health care services than they would need. On the other hand, adverse selection happens before the insurance contract has been signed, when the insurance company cannot assess the risk type of individual purchasing the insurance. This individual may be a low health risk, so they will be mainly healthy and generate low health care spending, or they may be high risk and will generate high health care spending. If the adverse selection does not take place, then low-risk individuals might prefer to buy the insurance and this is called advantageous or propitious selection [8], which is beneficial to insurance companies. This situation is often explained by a person's risk preferences. Healthy people tend to be risk-averse and so they choose to buy VHI [9, 10].

Older people are often considered as high health risk individuals, who are very likely to have more health problems than younger individuals, have higher medical expenditures, and raise the claims paid by insurance companies [11]. Not only do these people have more health problems, but insurance companies face moral hazards and adverse selection issues that result in the overuse of health care and the payment of excessive claims. For these reasons, older people are not usually the customers desired by insurance companies.

The Portuguese health insurance market is not as highly regulated as it is in other countries, because health insurance is voluntary and the NHS has universal coverage. So, insurance companies can adopt several strategies to prevent or mitigate moral hazard and adverse selection [12] and to reduce paying out excessive claims. One strategy could involve the eligibility requirements excluding people older than 65. Even though this cream-skimming strategy discriminates against older people, there is a small health insurance market for older people in Portugal. In the last available National Health Survey, conducted in 2014, of the 5,701 people older than 65 interviewed, 5.8% of them stated they had a voluntary health insurance policy.

The purpose of this work is to estimate the main determinants for older people in Portugal to take out private health insurance since no previous studies have been published and there may be differences across European countries [13, 14]. We use data collected by the 2014 National Health Survey and we estimate a multivariate probit. We also compute the marginal effects associated with the most important variables. This analysis provides insights for designing health and social policies that will reduce the inequality in health care access that may be generated by differences in health insurance coverage.

#### **1.1 Demand determinants for voluntary private health insurance**

The factors explaining the demand for VHI are well discussed in the literature. While Outreville [15] focused on the demand for insurance in general, [16, 17] have looked at the demand for VHI and reviewed the determinants for buying it; [1] outlined these determinants for the EU countries. The explanatory factors include the demographic and economic determinants (also referred to as socioeconomic status), that is, gender, age, education, income, marital status, employment status, and other

*Voluntary Private Health Insurance Demand by Older People in a National Health Service… DOI: http://dx.doi.org/10.5772/intechopen.105100*

characteristics [11, 13, 16–19]. In general, we can say that the likelihood of purchasing VPHI increases with age, income, education, being employed, and living in urban areas. The results are not conclusive for determinants, such as gender, family composition, and being a pensioner.

In Europe, where health systems tend to be mandatory and offer universal coverage, the determinants for holding a private VHI differ between countries [13, 14]. Regarding Portugal, an empirical study performed almost 20 years ago [20], concluded that the VHI buyers were most likely young, self-employed, living in urban areas, and receiving a middle to high income, thus leaving out older people.

The focus on the demand for private VHI by older people has been much less studied because it is known that as we age, the likelihood of having this type of insurance decreases [21]. Four empirical works should be mentioned that are concerned exclusively with older people and use the data collected by SHARE – Survey of Health, Aging, and Retirement in Europe [18, 13, 14, 19]. In general, being female, having had a good education, and receiving a higher income increases the demand for private VHI by older people.

Special attention is often given to the role of the health status and health behavior since there are proxies for the individual healthrisk type [22]. Health status can be measured by self-assessed health and the presence (or the number) of chronic diseases [18, 23], while health behavior can be proxied by body mass index or being overweight [24], and by smoking decisions [25].

The theory predicts that high-risk individuals are more likely to have health insurance, that is, adverse selection exists in health insurance. However, there are no conclusive empirical results regarding the relationship between individual risk variables and having a VHI policy [16]. This means that advantageous selection is a possibility, where low-risk type people choose to buy health insurance [23, 26].

The empirical results regarding indicators of health status and health-related behavior are mixed. Some studies have found that people reporting better health are more likely to have voluntary health insurance, supporting the hypothesis of advantageous selection [11, 12, 14, 18, 23, 27–29]; other authors found no significant correlation [27, 30]; and still, others found that healthy people tend to have VHI less often, as predicted by adverse selection hypothesis [11, 12, 14, 19].

In most studies, indicators of chronic diseases are found to be insignificant when explaining the demand for VHI [29, 31, 32]. Few works have reported a positive correlation between suffering from chronic diseases and having private health insurance [18, 23].

The relationship between health-related behaviors and private VHI coverage has been studied less and the results are mixed [14]. While some studies find that smokers are less likely to have VHI [27, 33], others find the opposite [18]. The results are similarly mixed for overweight people. It may be found that being overweight is associated with lower odds of taking out VHI or more likely [24].

#### **1.2 Overview of the Portuguese health system**

The Portuguese Health System, created in 1979, is defined as a National Health Service; it is mainly financed through taxes and is a universal coverage system. This means it covers all residents and most medical services.

In parallel with the NHS, there are occupation-based health insurance schemes. These include the public insurance schemes that cover civil servants (called ADSE), the armed forces (called ADM), and also private insurance that covers bank

employees (called SAMS), among others. There are other, smaller, occupation-based health insurance plans. All the social contributions under these professional insurance policies are income based.

The Portuguese health system comprises conventional private health insurance and it is non-compulsory. Voluntary health insurance (VHI) provides faster access to appointments and treatments, which are also provided by the NHS, or provides access to services not covered by the NHS, such as dental care.

According to NHS rules, people should be registered with an NHS general practitioner, for primary care, and access to specialists in the NHS is controlled by general practitioner gatekeeping. However, people covered by insurance have direct access to specialists (provided by the private sector) according to the rules of the insurance, and private physicians can refer patients to NHS hospitals. So, having an insurance policy on top of NHS coverage has some advantages when it comes to accessing health care services [3]. These reasons for health care access and quality might justify the demand for private VHI by older people in Portugal.
