High health care expenditures following a health shock can lead to long term economic consequences. Health insurance has the potential to avert economic difficulties following health shocks,
increase health care utilization and improve health. However, adverse selection in health insurance markets may stop voluntary health insurance markets from providing protection to most
consumers without substantial regulation and subsidization. This paper is part of a larger evaluation of the SKY micro health insurance program in rural Cambodia. In this paper we study adverse selection into this insurance market. As part of this study we use a randomized experimental design to separate adverse selection from moral hazard. We test three implication of theories of adverse selection: that households joining are more adversely selected based on characteristics observable at the base line; that households that purchase insurance at a high price are more adversely selected on observables than those that purchase identical coverage at a lower price; and that households that purchase at the higher price will demonstrate more adverse selection in utilization than households purchasing coverage at a lower price even after holding constant baseline characteristics (Sunob servableT selection). We find that households that purchase insurance have some characteristics consistent with higher expected health care uti
lization. Contrary to expectations, households paying a higher price do not demonstrate more selection on characteristics ob servable prior to insurance purchase. However, households that paid more for health insurance have substantially higher usage of both health centers and hospitals than households that received a discounted price, even when comparing households with similar observed baseline health. This result is consistent with substantial adverse selection based on factors we did not observe prior to insurance purchase.