Empirical identification of the exact extent of the selection problem is in general challenging because of the interaction of selection and moral hazard. The mere fact that people who choose a voluntary deductible have lower health expenses does not, by itself, prove the presence of adverse selection. This may also be due to more cost conscious behavior induced by the deductible, i.e. less moral hazard. By examining people’s deductible choice, while taking account of their prior health care expenses, I was able to identify the selection effect separately from the moral hazard effect.
- PhD student
- Promotor
- Promotor
- Date
- Thursday 16 May 2019, 13:30 - 15:30
- Type
- PhD defence
- Spoken Language
- English
- Space
- Senate Hall
- Building
- Erasmus Building
- Location
- Campus Woudestein
My analysis showed that offering contracts with voluntary deductibles results in self-selection by healthier individuals, who are overcompensated by the risk-adjustment system. The expected gains for insurers on the risk-adjustment per individual with a voluntary deductible of 500 euro were estimated to be around 450 euro on average.
I also examined the interaction between selection and consumer inertia. People with higher previous health care cost are substantially less likely to take up or keep a 500 euro deductible. However, I also found clear evidence of high consumer inertia as the propensity of taking up a 500 euro voluntary deductible among low-cost individuals is only 3.5% while such a deductible would probably be profitable for them.
Within the current Dutch market for basic health insurance, activities aimed at reducing consumer inertia with regard to deductible choice may be welfare improving. These potential welfare gains might even be higher if the reduction of consumer inertia is combined with an improvement in risk-adjustment system that reduces the expected gains on the risk-adjusted payments for people choosing a voluntary deductible.
- More information
This PhD Defense will be in English.
