Cost Sharing in Health Insurance: An Instrument for Risk Selection?

Karolin Becker () and Peter Zweifel ()
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Karolin Becker: Plaut Economics, Olten
Peter Zweifel: Socioeconomic Institute, University of Zurich

No 513, SOI - Working Papers from Socioeconomic Institute - University of Zurich

Abstract: Health insurance is potentially subject to risk selection, i.e. adverse selection on the part of consumers and cream skimming on the part of insurers. Adverse selection models predict that competitive health insurers can eschew high-risk individuals by o�ering contracts with low deductibles or co-payment rates, while attracting low-risk individuals with higher copayments, resulting in a separating equilibrium. This contribution seeks to determine whether in competitive Swiss social health insurance policies with deductibles in excess of the legal minimum do indeed serve as an instrument of risk selection. In a discrete choice experiment, e�ected in 2003, some 1,000 individuals were given the hypothetical choice of alternative insurance contracts that differed both in terms of deductibles and copayments and in bene.ts covered. Results suggest that healthy individuals, i.e. those not having consulted medical services during the past six months, were more likely to select a policy with a high deductible. Compensation demanded for voluntarily accepting an increase in the annual deductible also varies with socioeconomic characteristics and increases with the current level of deductible, as predicted by theory and constituting evidence in favor of the risk selection hypothesis. The experiment allows to compute necessary premium reductions and provides guidance for the pricing policy of insurers when o�ering di�erentiated products.

Keywords: health insurance; deductible; copayment; willingness-to-pay; adverse selection (search for similar items in EconPapers)
JEL-codes: C35 C93 D61 I11 I18 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2005-11
New Economics Papers: this item is included in nep-dcm, nep-hea and nep-ias
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (24)

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