Working Paper: CEPR ID: DP18395
Authors: Tobias Klein; Martin Salm; Suraj Upadhyay
Abstract: Health insurance premiums often do not reflect individual health risks, implying redistribution from individuals with low health risks to individuals with high health risks. This paper studies whether more cost-sharing leads to less redistribution and to lower welfare of high-risk individuals. This could be the case because more cost-sharing increases out-of-pocket payments especially for high-risk individuals. We estimate a structural model of healthcare consumption using administrative data from a Dutch health insurer. We use the model to simulate the effects of a host of counterfactual policies. The policy that was in place was a 350 euro deductible. Our counterfactual experiments show that redistribution would decrease when the deductible would increase. Nonetheless, high-risk individuals can benefit from higher levels of cost-sharing. The reason is that this leads to lower premiums because both high-risk and low-risk individuals strongly react to the financial incentives cost-sharing provides.
Keywords: health insurance; moral hazard; patient costsharing; risk solidarity
JEL Codes: I13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Increasing the deductible from €350 to €500 (G52) | Decrease in risk solidarity (G52) |
| Higher levels of cost-sharing (G52) | Lower premiums (G52) |
| Lower premiums (G52) | Enhanced welfare for high-risk individuals (I38) |
| Higher deductibles reduce risk solidarity (G52) | Premium reductions can enhance welfare for high-risk individuals (G52) |
| Policies leading to lower spending (H59) | Not necessarily less risk solidarity (D81) |
| Policies leading to lower spending (H59) | May enhance overall welfare across risk groups (I14) |
| Cost-sharing levels (I22) | Healthcare consumption (I11) |
| Out-of-pocket expenses (H51) | Implications for risk solidarity and individual welfare (I14) |