Demand for Hospital Care and Private Health Insurance in a Mixed Public–Private System: Empirical Evidence Using a Simultaneous Equation Modeling Approach

Melbourne Institute Working Paper No. 22/11

Date: September 2011


Terence Chai Cheng
Farshid Vahid


This paper examines the determinants of hospital stay intensity, the decision to seek hospital care as a public or private patient and the decision to purchase private hospital insurance. We describe a theoretical model to motivate the simultaneous nature of these decisions. For the empirical analysis, we develop a simultaneous equation econometric model that accommodates the count data nature of length of stay and the binary nature of the patient type and insurance decisions. The model also accounts for the endogeneity of the patient type and insurance binary variables. The results indicate that there is no evidence of endogeneity between the decision to purchase insurance on the type and intensity of hospital care use. We find some evidence of moral hazard effects of private hospital insurance on the intensity of private hospital care. The results also indicate that the length of hospital stay for private patients is shorter than for public patients.

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