Abstract
Many health insurance schemes include deductibles to provide consumers with cost containment incentives (CCI) and to counteract moral hazard. Policymakers are faced with choices on the implementation of a specific cost sharing design. One of the guiding principles in this decision process could be which design leads to the strongest CCI. Despite the vast amount of literature on the effects of cost sharing, the relative effects of specific cost sharing designs—e.g., a traditional deductible versus a doughnut hole—will mostly be absent for a certain context. This papers aims at developing a simulation model to approximate the relative effects of different deductible modalities on the CCI. We argue that the CCI depends on the probability that healthcare expenses end up in the deductible range and the expected healthcare expenses given that they end up in the deductible range. Our empirical application shows that different deductible modalities result in different CCIs and that the CCI under a certain modality differs across risk-groups.
Highlights
There is a vast amount of literature on the effects of consumer cost sharing on moral hazard [1, 13, 22]
Starting from the traditional economic theory that consumers act like a homo economicus, this paper has developed a method to simulate Cost Containment Incentives (CCI) under different deductible modalities
We have found that under a first-euro deductible the containment incentives (CCI) is strongest for the low-risk individuals, as long as the deductible amount is relatively low
Summary
There is a vast amount of literature on the effects of consumer cost sharing on moral hazard [1, 13, 22]. The RAND experiment, for example, has shown that a higher level of cost sharing generally results in less moral hazard [12]. For example, a first-euro deductible (i.e., up to the deductible amount, insured are obliged to pay 100% of their healthcare expenses out-of-pocket in the contract period, generally a calendar year) be favored rather than a ‘doughnut hole’ (i.e., insured experience a gap in coverage starting after they have incurred a fixed amount of healthcare expenses)? Under a first-euro deductible, the timing is initial, while under a ‘doughnut hole’ the timing of onset is delayed, since individual healthcare expenses are required before this modality comes into effect. One of the guiding principles in this decision process on the cost sharing design could be which specific cost sharing design is expected to lead to the strongest incentives for cost containment
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