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Risk equalization and voluntary deductibles: a complex interaction


van Kleef, R C; Beck, K; van de Ven, W P M M; van Vliet, R C J A (2008). Risk equalization and voluntary deductibles: a complex interaction. Journal of Health Economics, 27(2):427-443.

Abstract

The presence of voluntary deductibles in the Swiss and Dutch mandatory health insurance has important implications for the respective risk equalization systems. In a theoretical analysis, we discuss the consequences of equalizing three types of expenditures: the net claims that are reimbursed by the insurer, the out-of-pocket expenditures and the expenditure savings due to moral hazard reduction. Equalizing only the net claims, as done in Switzerland, creates incentives for cream skimming and prevents insurers from incorporating out-of-pocket expenditures and moral hazard reductions into their premium structure. In an empirical analysis, we examine the effect of self-selection and conclude that the Swiss and Dutch risk equalization systems do not fully adjust for differences in health status between those who choose a deductible and those who do not. We discuss how this may lead to incentives for cream skimming and to a reduction of cross-subsidies from healthy to unhealthy individuals compared to a situation without voluntary deductibles.

Abstract

The presence of voluntary deductibles in the Swiss and Dutch mandatory health insurance has important implications for the respective risk equalization systems. In a theoretical analysis, we discuss the consequences of equalizing three types of expenditures: the net claims that are reimbursed by the insurer, the out-of-pocket expenditures and the expenditure savings due to moral hazard reduction. Equalizing only the net claims, as done in Switzerland, creates incentives for cream skimming and prevents insurers from incorporating out-of-pocket expenditures and moral hazard reductions into their premium structure. In an empirical analysis, we examine the effect of self-selection and conclude that the Swiss and Dutch risk equalization systems do not fully adjust for differences in health status between those who choose a deductible and those who do not. We discuss how this may lead to incentives for cream skimming and to a reduction of cross-subsidies from healthy to unhealthy individuals compared to a situation without voluntary deductibles.

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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Economics
Dewey Decimal Classification:330 Economics
Language:English
Date:2008
Deposited On:10 Nov 2008 12:39
Last Modified:05 Apr 2016 12:31
Publisher:Elsevier
ISSN:0167-6296
Additional Information:The same contect was also published as: van Kleef, R C; Beck, K; van de Ven, W P M M; van Vliet, R C J A (2008). Risk equalization and voluntary deductibles: a complex interaction. In: Richard C. van Kleef (Ed.), Voluntary deductibles and risk equalization: a complex interaction, Rotterdam, Chapter 2, p. 15-42.
Publisher DOI:https://doi.org/10.1016/j.jhealeco.2007.06.001

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