Working Paper: NBER ID: w28430
Authors: Long Hong; Corina Mommaerts
Abstract: Health insurance plans increasingly pay for expenses only beyond a large annual deductible. This paper explores the implications of deductibles that reset over shorter timespans. We develop a model of insurance demand between two actuarially equivalent deductible policies, in which one deductible is larger and resets annually and the other deductible is smaller and resets biannually. Our model incorporates borrowing constraints, moral hazard, mid-year contract switching, and delayable care. Calibrations using claims data show that the liquidity benefits of resetting deductibles can generate welfare gains of 3-10% of premium costs, particularly for individuals with borrowing constraints.
Keywords: No keywords provided
JEL Codes: D15; D81; G22; G52; I13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| resetting deductibles (G52) | welfare gains (D69) |
| liquidity benefits (G33) | willingness to pay for resetting deductibles (G52) |
| moral hazard (G52) | liquidity benefits of resetting deductibles (G52) |
| moral hazard (G52) | willingness to pay for resetting deductibles (G52) |
| delayability of care (I11) | willingness to pay for resetting deductibles (G52) |
| deductible policies (G52) | trade-off between risk protection, liquidity, and moral hazard (G52) |