Demand for Supplemental Health Insurance in Germany – Improving Quality of Care and Closing Coverage Gaps

We use the German Socio-Economic Panel (GSOEP) to analyze determinants of the demand for supplemental health insurance covering hospital and dental in Germany. The GSOP dataset provides doctor diagnosed indicators of the individual’s health state, risk attitude, and demand for medical services and insurance purchases in other lines of insurance as well as rich demographical and socioeconomical information. Controlling for a wide range of individual preferences we find evidence of adverse selection for individuals aged 65 and younger for hospital coverage despite initial individual underwriting by insurers. The reverse is true for individuals older than 65, individuals with supplemental hospital coverage are healthier on average. In addition, insurance affinity and income are the most important drivers for the demand for both types of coverage.