The introduction of deductibles for prescription drugs in a national health insurance: compulsory or voluntary?

Abstract

We consider a situation of full insurance coverage for prescription drugs where, at a certain point in time, people are given the opportunity to take a deductible in exchange for a lower premium. Four determinants of this premium reduction can be considered: expected out-of-pocket payments, adverse selection effects, moral hazard effects, and administration costs. The purpose of this study is to analyse the first two determinants. Survey data of 17 242 insureds in the Netherlands have been used for this research. Results show that the expected out-of-pocket expenditures in case of a certain deductible amount depend strongly on age and gender. People in poor health could be given a larger premium discount if they would take a deductible than those in good health. This implies that a uniform premium discount would induce adverse selection. The effects of such selection have been simulated by using a survey question about the preference to take a general deductible. If the premium reductions for policies with a deductible are adjusted for age and gender, the selection effect will halve but will still be substantial. We conclude that, in the situation considered here, it is largely immaterial whether deductibles are compulsory or voluntary, provided premium reductions are allowed to depend on relevant risk factors.