Time Aggregation in Health Insurance Deductibles

Long Hong and Corina Mommaerts

No 28430, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: D15 D81 G22 G52 I13 (search for similar items in EconPapers)
Date: 2021-02
New Economics Papers: this item is included in nep-hea and nep-ias
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Published as Long Hong & Corina Mommaerts, 2024. "Time Aggregation in Health Insurance Deductibles," American Economic Journal: Economic Policy, vol 16(2), pages 270-299.

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