The research reported in this paper examines the decision to have private health insurance by elderly Medicare enrollees. Models allowing both simultaneity and a joint error structure between health insurance and use of medical care are considered. We find that common unobserved variables underlying the joint errors are important determinants in the decision to purchase private health insurance. Simultaneity is present only between the decision to have private health insurance and the probability of visiting a doctor.

Health status and functional limitations are important determinants of the decision to have private health insurance in addition to Medicare coverage. Other personal characteristics (age, sex, race, and education), as well as household income, Medicaid enrollment, and the employment of a family member are also found to be related to the decision to have private health insurance.