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Time Aggregation in Health Insurance Deductibles

Author

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  • Long Hong
  • Corina Mommaerts

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.

Suggested Citation

  • Long Hong & Corina Mommaerts, 2024. "Time Aggregation in Health Insurance Deductibles," American Economic Journal: Economic Policy, American Economic Association, vol. 16(2), pages 270-299, May.
    • Handle: RePEc:aea:aejpol:v:16:y:2024:i:2:p:270-99
    DOI: 10.1257/pol.20210799
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    More about this item

    JEL classification:

    • D15 - Microeconomics - - Household Behavior - - - Intertemporal Household Choice; Life Cycle Models and Saving
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth
    • G52 - Financial Economics - - Household Finance - - - Insurance
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private

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