In this study, we report that unobserved common factors are powerful explanation of the decision to have private health insurance and the use of medical care by elderly Medicare recipients. This indicates that unobserved factors leading some individuals to have private health insurance coverage to fill in the gaps in Medicare also cause these individuals to seek more medical care than other Medicare enrollees. Simultaneity is also significant between the decisions to have private health insurance in addition to Medicare coverage and to visit a doctor, but not between the decisions to have private health insurance and the number of doctor visits nor the use of hospital care.

Other results indicate that health status and functional limitations are significant determinants of whether an individual has private health insurance and the decision to seek medical care and subsequent decisions concerning the levels of utilization. Other characteristics (age, sex, race, education, marital status, and region) are significant in the decision to have private health insurance, but less important in the utilization of medical care. Unlike prior studies in which health insurance coverage is not jointly estimated with use of medical care, we find that education and income have only an effect on use of medical care.