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

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Author Info
Karolin Becker () (Plaut Economics, Olten)
Peter Zweifel () (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.

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Publisher Info
Paper provided by University of Zurich, Socioeconomic Institute in its series Working Papers with number 0513.

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Length: 40 pages
Date of creation: Nov 2005
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Publication status: Forthcoming in The Patient, 2008
Handle: RePEc:soz:wpaper:0513

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Related research
Keywords: health insurance; deductible; copayment; willingness-to-pay; ad- verse selection;

Find related papers by JEL classification:
C35 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Discrete Regression and Qualitative Choice Models
C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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