Shifted deductibles for high risks: more effective in reducing moral hazard than traditional deductibles

J Health Econ. 2009 Jan;28(1):198-209. doi: 10.1016/j.jhealeco.2008.09.007. Epub 2008 Oct 4.

Abstract

In health insurance, a traditional deductible (i.e. with a deductible range [0,d]) is in theory not effective in reducing moral hazard for individuals who know (ex-ante) that their expenditures will exceed the deductible amount d, e.g. those with a chronic disease. To increase the effectiveness, this paper proposes to shift the deductible range to [s(i),s(i)+d], with starting point s(i) depending on relevant risk characteristics of individual i. In an empirical illustration we assume the optimal shift to be such that the variance in out-of-pocket expenditures is maximized. Results indicate that for the 10-percent highest risks in our data the optimal starting point of a euro1000-deductible is to be found (far) beyond euro1200, which corresponds with a deductible range of [1200,2200] or further. We conclude that, compared to traditional deductibles, shifted deductibles with a risk-adjusted starting point lower out-of-pocket expenditures and may further reduce moral hazard.

MeSH terms

  • Adolescent
  • Adult
  • Aged
  • Deductibles and Coinsurance / ethics*
  • Female
  • Health Expenditures
  • Health Status
  • Humans
  • Insurance, Health / economics*
  • Male
  • Middle Aged
  • Models, Econometric
  • Risk Adjustment / economics*
  • Young Adult