Abstract
In health insurance, voluntary deductibles are offered to the insured in return for a premium rebate. Previous research has shown that 11 % of the Dutch insured opted for a voluntary deductible (VD) in health insurance in 2014, while the highest VD level was financially profitable for almost 50 % of the population in retrospect. To explain this discrepancy, this paper identifies and discusses six potential determinants of the decision to opt for a VD from the behavioral economic literature: loss aversion, risk attitude, ambiguity aversion, debt aversion, omission bias, and liquidity constraints. Based on these determinants, five potential strategies are proposed to increase the number of insured opting for a VD. Presenting the VD as the default option and providing transparent information regarding the VD are the two most promising strategies. If, as a result of these strategies, more insured would opt for a VD, moral hazard would be reduced.
Highlights
Fiercely debated (e.g., [24, 54]), cost sharing is an effective way to counteract moral hazard1 in health insurance [37, 41, 74]
Previous research has shown that 11 % of the Dutch insured opted for a voluntary deductible (VD) in health insurance in 2014, while the highest VD level was financially profitable for almost 50 % of the population in retrospect
This paper identifies and discusses six potential determinants of the decision to opt for a VD from the behavioral economic literature: loss aversion, risk attitude, ambiguity aversion, debt aversion, omission bias, and liquidity constraints
Summary
Fiercely debated (e.g., [24, 54]), cost sharing is an effective way to counteract moral hazard in health insurance [37, 41, 74]. With ‘opting for a voluntary deductible’ as the reference point, risk seeking behavior is expected since commuting the voluntary deductible implies a certain loss With this strategy, the insured is inclined to retain the voluntary deductible due to omission bias (and decision fatigue and transaction costs). The results show that the personal letters appear to have nudged more individuals to pick lower-cost plans and the overall switching rate was 10 percentage- points higher than among the participants who received the brochures [61] These results could give an indication that providing insured with information regarding their healthcare expenses and the savings they could realize by opting for a voluntary deductible could potentially increase uptake of voluntary deductibles. The effect of (some of) the strategies on the individual moral hazard reduction and on the total moral hazard reduction needs further research
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