The effect of Financial Literacy on Health Insurance Choice within the Netherlands

The Netherlands has a healthcare system of managed competition in which each individual is obliged to purchase health insurance at the private market. Liberty is an important value of this Bismarckian model where consumers are free to make fundamental economic decisions with respect to their health insurance. This paper will analyse three of these choices, (1) switch of health insurance provider, (2) uptake of a voluntary deductible, and (3) uptake of complementary insurance, and their relation to financial literacy. The effect of financial literacy on the health insurance decisions has been modelled by a Probit regression. The data has been obtained from the Longitudinal Internet Studies of Social sciences (LISS) panel. Evidence is provided that financial literacy has a positive effect on switching behaviour and the uptake of complementary insurance. A negative relation is found between the uptake of a voluntary deductible and financial literacy.