Private Medical Insurance and Savings for Precautionary Reasons: Evidence from Sri Lanka

Abstract

Medical insurance schemes are gaining popularity in many developing countries in recent decades due mainly to increasing out-of-pocket medical spending. Therefore, the study intended to explore individual preference towards medical insurance and savings concerning precautionary reasons in Sri Lanka and to estimate the effect of private medical insurance coverage on propensity to save. This study focuses 200 respondents whose age is between 18 and 55 year from Matara District of Sri Lanka. The results show that the private medical insurance coverage is positively and statistically significant with savings. This result suggests that the private medical insurance coverage does not crowd-out savings of individuals in Sri Lanka. Moreover, this study focused several explanatory factors that affect the savings behaviour of individuals and preference towards private medical insurance policy. Importantly, the savings tend to increase for individuals who expect the uncertain financial situation and financial situation worse than expected. It is also higher for individuals who have current financial situation as being good, who are not married, who have a higher education level, who have a higher income level, and who have no dependent children and one dependent child. On the hand, the savings tend to decrease for individuals who expect the financial situation to be improved, who have a current financial situation as being bad, and who have two dependent children or more. Therefore, these findings will benefit policy makers in developing an appropriate public or private medical insurance scheme and in formulating a better healthcare policy to ensure sufficient financial safeguard against medical emergencies for Sri Lankan citizens.