Time aggregation in health insurance deductibles
By: Hong, Long and Mommaerts, Corina
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Material type: 
BookPublisher: American Economic Journal: Economic Policy Description: 16(2), May, 2024: p.270-299.Subject(s): Economics, Health Insurance, Deductibles, Time Aggregation, Insurance Demand, Borrowing Constraints, Moral Hazard, Contract Switching, Delayable Care, Welfare Gains, Premium Costs, Claims Data, Liquidity Benefit
In:
American Economic Journal: Economic PolicySummary: This paper explores the implications of health insurance deductibles that reset over shorter timespans compared to traditional annual structures. A model of insurance demand is developed to compare two actuarially equivalent deductible policies: one larger deductible resetting annually and one smaller deductible resetting biannually. The framework incorporates borrowing constraints, moral hazard, midyear contract switching, and delayable care. Calibrations using claims data show that the liquidity benefits of resetting deductibles can generate welfare gains of 3–10 percent of premium costs, particularly for individuals facing borrowing constraints. The findings highlight the importance of deductible design in shaping insurance demand, welfare outcomes, and consumer liquidity. Health insurance plans increasingly pay for expenses only beyond a large annual deductible. This paper explores the implications of deductibles that reset over shorter timespans. We develop a model of insurance demand between two actuarially equivalent deductible policies in which one deductible is larger and resets annually and the other deductible is smaller and resets biannually. Our model incorporates borrowing constraints, moral hazard, midyear contract switching, and delayable care. Calibrations using claims data show that the liquidity benefits of resetting deductibles can generate welfare gains of 3–10 percent of premium costs, particularly for individuals with borrowing constraints.- Reproduced
https://www.aeaweb.org/articles?id=10.1257/pol.20210799
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Articles
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Indian Institute of Public Administration | 16(2), May, 2024: p.270-299 | Available | AR133291 |
This paper explores the implications of health insurance deductibles that reset over shorter timespans compared to traditional annual structures. A model of insurance demand is developed to compare two actuarially equivalent deductible policies: one larger deductible resetting annually and one smaller deductible resetting biannually. The framework incorporates borrowing constraints, moral hazard, midyear contract switching, and delayable care. Calibrations using claims data show that the liquidity benefits of resetting deductibles can generate welfare gains of 3–10 percent of premium costs, particularly for individuals facing borrowing constraints. The findings highlight the importance of deductible design in shaping insurance demand, welfare outcomes, and consumer liquidity. Health insurance plans increasingly pay for expenses only beyond a large annual deductible. This paper explores the implications of deductibles that reset over shorter timespans. We develop a model of insurance demand between two actuarially equivalent deductible policies in which one deductible is larger and resets annually and the other deductible is smaller and resets biannually. Our model incorporates borrowing constraints, moral hazard, midyear contract switching, and delayable care. Calibrations using claims data show that the liquidity benefits of resetting deductibles can generate welfare gains of 3–10 percent of premium costs, particularly for individuals with borrowing constraints.- Reproduced
https://www.aeaweb.org/articles?id=10.1257/pol.20210799
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