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Does risk equalization reduce the viability of voluntary deductibles?


van Kleef, R C; Beck, K; van de Ven, W P M M; van Vliet, R C J A (2007). Does risk equalization reduce the viability of voluntary deductibles? International Journal of Health Care Finance and Economics, 7(1):43-58.

Abstract

Theoretically, a risk avers consumer takes a deductible if the premium rebate (far) exceeds his/her expected out-of-pocket expenditures. In the absence of risk equalization, insurers are able to offer high rebates because those who select into a deductible plan have below-average expenses. This paper shows that, for high deductibles, such rebates cannot be offered if risk equalization would “perfectly” adjust for the effect of self selection. Since the main goal of user charges is to reduce moral hazard, some effect of self selection on the premium rebate can be justified to increase the viability of voluntary deductibles.

Abstract

Theoretically, a risk avers consumer takes a deductible if the premium rebate (far) exceeds his/her expected out-of-pocket expenditures. In the absence of risk equalization, insurers are able to offer high rebates because those who select into a deductible plan have below-average expenses. This paper shows that, for high deductibles, such rebates cannot be offered if risk equalization would “perfectly” adjust for the effect of self selection. Since the main goal of user charges is to reduce moral hazard, some effect of self selection on the premium rebate can be justified to increase the viability of 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:March 2007
Deposited On:27 Mar 2009 12:47
Last Modified:05 Apr 2016 12:31
Publisher:Springer
ISSN:1389-6563
Additional Information:The original publication is available at www.springerlink.com.
Publisher DOI:https://doi.org/10.1007/s10754-007-9011-1

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