Optimal demand for treatment and health insurance under multivariate preferences

Abstract Health insurance mitigates health risks by covering the cost of treatment, but it also reduces the financial risk associated with those costs. In a multivariate preference framework, this study analyzes the effects of changes in wealth, health status, insurance premiums, treatment costs, and the severity of health loss on the demand for treatment and health insurance in the face of health loss. The conditions under which demand for treatment and insurance increases depend on the attitude toward the correlation between wealth and health, namely, correlation loving or correlation aversion, as well as the attitude toward wealth and health risks. These findings have implications for government subsidization policies related to treatment and health insurance and health promotion policies.