Time Aggregation in Health Insurance Deductibles
American Economic Journal: Economic Policy
vol. 16,
no. 2, May 2024
(pp. 270-99)
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, midyear contract switching, and delayable care. Calibrations using claims data show that the liquidity benefits of resetting deductibles can generate welfare gains of 3–10 percent of premium costs, particularly for individuals with borrowing constraints.Citation
Hong, Long, and Corina Mommaerts. 2024. "Time Aggregation in Health Insurance Deductibles." American Economic Journal: Economic Policy, 16 (2): 270-99. DOI: 10.1257/pol.20210799Additional Materials
JEL Classification
- D15 Intertemporal Household Choice; Life Cycle Models and Saving
- D82 Asymmetric and Private Information; Mechanism Design
- G22 Insurance; Insurance Companies; Actuarial Studies
- G51 Household Finance: Household Saving, Borrowing, Debt, and Wealth
- G52 Household Finance: Insurance
- I13 Health Insurance, Public and Private
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