Time Aggregation in Health Insurance Deductibles

43 Pages Posted: 8 Feb 2021 Last revised: 7 Mar 2022

See all articles by Long Hong

Long Hong

University of Wisconsin - Madison

Corina Mommaerts

University of Wisconsin - Madison - Department of Economics

Date Written: February 2021

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, mid-year contract switching, and delayable care. Calibrations using claims data show that the liquidity benefits of resetting deductibles can generate welfare gains of 6-10% of premium costs, particularly for individuals with borrowing constraints.

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Suggested Citation

Hong, Long and Mommaerts, Corina, Time Aggregation in Health Insurance Deductibles (February 2021). NBER Working Paper No. w28430, Available at SSRN: https://ssrn.com/abstract=3781317

Long Hong (Contact Author)

University of Wisconsin - Madison

Corina Mommaerts

University of Wisconsin - Madison - Department of Economics ( email )

William H. Sewell Social Science Building
1180 Observatory Drive
Madison, WI 53706-1393
United States

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