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A method to simulate incentives for cost containment under various cost sharing designs: an application to a first-euro deductible and a doughnut hole

Author

Listed:
  • D. Cattel

    (Erasmus University Rotterdam)

  • R. C. Kleef

    (Erasmus University Rotterdam)

  • R. C. J. A. Vliet

    (Erasmus University Rotterdam)

Abstract

Many health insurance schemes include deductibles to provide consumers with cost containment incentives (CCI) and to counteract moral hazard. Policymakers are faced with choices on the implementation of a specific cost sharing design. One of the guiding principles in this decision process could be which design leads to the strongest CCI. Despite the vast amount of literature on the effects of cost sharing, the relative effects of specific cost sharing designs—e.g., a traditional deductible versus a doughnut hole—will mostly be absent for a certain context. This papers aims at developing a simulation model to approximate the relative effects of different deductible modalities on the CCI. We argue that the CCI depends on the probability that healthcare expenses end up in the deductible range and the expected healthcare expenses given that they end up in the deductible range. Our empirical application shows that different deductible modalities result in different CCIs and that the CCI under a certain modality differs across risk-groups.

Suggested Citation

  • D. Cattel & R. C. Kleef & R. C. J. A. Vliet, 2017. "A method to simulate incentives for cost containment under various cost sharing designs: an application to a first-euro deductible and a doughnut hole," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 18(8), pages 987-1000, November.
  • Handle: RePEc:spr:eujhec:v:18:y:2017:i:8:d:10.1007_s10198-016-0843-9
    DOI: 10.1007/s10198-016-0843-9
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    References listed on IDEAS

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    1. Zarek C. Brot-Goldberg & Amitabh Chandra & Benjamin R. Handel & Jonathan T. Kolstad, 2017. "What does a Deductible Do? The Impact of Cost-Sharing on Health Care Prices, Quantities, and Spending Dynamics," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 132(3), pages 1261-1318.
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    More about this item

    Keywords

    Health insurance; Moral hazard; Deductibles; Cost containment; Expected health expenses; Incentives;
    All these keywords.

    JEL classification:

    • I10 - Health, Education, and Welfare - - Health - - - General
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General

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