Time Aggregation in Health Insurance Deductibles

Long Hong and Corina Mommaerts

American Economic Journal: Economic Policy, 2024, vol. 16, issue 2, 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.

JEL-codes: D15 D82 G22 G51 G52 I13 (search for similar items in EconPapers)
Date: 2024
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Working Paper: Time Aggregation in Health Insurance Deductibles (2021)
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DOI: 10.1257/pol.20210799

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