Do People Have a Bias for Low-Deductible Insurance?

15 Pages Posted: 20 Apr 2020 Last revised: 4 Oct 2024

See all articles by Howard Kunreuther

Howard Kunreuther

National Bureau of Economic Research (NBER); University of Pennsylvania - Wharton Risk Management and Decision Processes Center

Mark Pauly

University of Pennsylvania

Date Written: April 2020

Abstract

Do consumers show a strong bias toward low deductible insurance plans, as many field studies imply? This paper reports on a controlled experiment intended to see whether subjects have a predisposition toward such plans and whether that preference is consistent when their default plan and premiums are changed. Subjects were presented with a scenario where they had to make a decision on whether to purchase a plan with a low deductible (LD) or high deductible (HD) when faced with an illness having a specified probability and cost. Participants had to choose between these plans in two rounds with the identical risk of an illness and specified premiums. If their default option was an LD plan in Round 1, then it was an HD plan in Round 2. The experiment did not show a strong bias toward low deductible health plans. Only slightly more than half of the respondents chose an LD plan even when it was optimal for them to do so. When faced with a default option that was switched in Round 2, 58% of the respondents chose the same plan as they did in Round 1, implying that some but not all subjects resisted the default option in their decision process. Subject choices were correlated with their responses to questions about risk aversion and a desire for peace of mind.

Suggested Citation

Kunreuther, Howard C. and Kunreuther, Howard C. and Pauly, Mark, Do People Have a Bias for Low-Deductible Insurance? (April 2020). NBER Working Paper No. w26994, Available at SSRN: https://ssrn.com/abstract=3580552

Howard C. Kunreuther (Contact Author)

National Bureau of Economic Research (NBER)

University of Pennsylvania - Wharton Risk Management and Decision Processes Center ( email )

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215-898-4589 (Phone)

Mark Pauly

University of Pennsylvania ( email )

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