Top

The European Journal of Health Economics

Published in:

Open Access 01-12-2016 | Original Paper

Potential determinants of deductible uptake in health insurance: How to increase uptake in The Netherlands?

Authors: K. P. M. van Winssen, R. C. van Kleef, W. P. M. M. van de Ven

Published in: The European Journal of Health Economics | Issue 9/2016

Abstract

In health insurance, voluntary deductibles are offered to the insured in return for a premium rebate. Previous research has shown that 11 % of the Dutch insured opted for a voluntary deductible (VD) in health insurance in 2014, while the highest VD level was financially profitable for almost 50 % of the population in retrospect. To explain this discrepancy, this paper identifies and discusses six potential determinants of the decision to opt for a VD from the behavioral economic literature: loss aversion, risk attitude, ambiguity aversion, debt aversion, omission bias, and liquidity constraints. Based on these determinants, five potential strategies are proposed to increase the number of insured opting for a VD. Presenting the VD as the default option and providing transparent information regarding the VD are the two most promising strategies. If, as a result of these strategies, more insured would opt for a VD, moral hazard would be reduced.

Moral hazard refers to the change in health behavior and consumption caused by the fact that the health insurer reimburses the costs [14, 73].

Since the possibility to opt for a voluntary deductible has already existed for a decade, we do not expect that unfamiliarity with the deductible would be a large contributor to the explanation of why the insured forego deductibles. However, the percentage of insured with a voluntary deductible has increased considerably in these years (i.e., from 5 % in 2006 [66] to 11 % in 2014 [67]).

Additionally, insurers may offer the insured who have opted for a voluntary deductible in previous years a different premium rebate. However, in practice, this does not happen.

The overall value of a prospect in CPT differs from that in expected utility theory (EUT) where choices under uncertainty are evaluated by their expected utility [68]. The main deviations from CPT with respect to EUT are the dependence upon a reference point, probability weighting and loss aversion [1]. We prefer to use CPT since it proves to have more descriptive validity than EUT.

We define a mixed prospect as a prospect that involves a gain and a loss and do not regard zero to be a gain. Therefore, we do not regard the second stage of scenarios 2 and 4 as mixed prospects but respectively as a gain and loss prospect.

For the definition of risk aversion see [42].

Obviously, chronically ill insured are aware of their probability since they know for certain that opting for a voluntary deductible is not profitable for them under the current design. However, the aim of this paper is to shed light on the discrepancy between the low percentage of insured who do opt for a voluntary deductible and the high percentage of insured for whom opting for a voluntary deductible is expected to be profitable. Opting for a voluntary deductible is not expected to be profitable for chronically ill and therefore we do not aim to provide determinants of their decision to opt for a voluntary deductible.

Ambiguity aversion is sometimes also referred to as uncertainty aversion.

Liquidity constraints may also encourage insured to opt for a voluntary deductible since the premium rebate reduces the monthly premium and relieves liquidity constraints.

It is assumed that individuals are aware of the fact that they can opt for a voluntary deductible at all.

Note that this strategy could also provide insured with information regarding how unattractive it would be for them to opt for a voluntary deductible, making them less inclined to opt for a voluntary deductible.

In 2006 and 2007, a no-claim rebate of €255 was implemented in the Dutch health insurance system but substituted by a mandatory deductible in 2008 since the five largest health insurers and several politicians argued that the no-claim rebate would be unfair to chronically ill and elderly, that it hardly resulted in any restrain on healthcare expenses and that it resulted in a lot of administrative hassle [11]. Research by Holland et al. [21] indicates that the no-claim rebate provided only a weak incentive to reduce healthcare consumption. Furthermore, although seemingly contradictory to the previous statement, their study shows a potential danger of strategic postponement of healthcare utilization (i.e., in order to receive the no-claim rebate), which may have adverse health effects.

In the Dutch health insurance market, the average offered premium rebate was €240 for a voluntary deductible of €500 in 2014. If the insured would incur healthcare expenses larger than the (mandatory and) voluntary deductible, the loss would be equivalent to €260. In case of a no-claim rebate, this potential loss is added to the premium (i.e., the premium is increased with €260 compared to the current design of the voluntary deductible). In return for this premium increase, the insured will receive up to €500 (i.e., the original voluntary deductible amount) in return if no or little healthcare expenses are incurred.

US dollars are converted to euros using an exchange rate of US$1 = €0.8262 (January 1, 2015).

Attema, A.E., Brouwer, W.B.F., l’Haridon, O.: Prospect theory in the health domain: a quantitative assessment. J. Health Econ. 32(6), 1057–1065 (2013). doi:10.1016/j.jhealeco.2013.08.006 PubMedCrossRef

Baicker, K., Congdon, W.J., Mullainathan, S.: Health insurance coverage and take-up: lessons from behavioral economics. Milbank Q. 90(1), 107–134 (2012). doi:10.1111/j.1468-0009.2011.00656.x PubMedPubMedCentralCrossRef

Bateman, I., Munro, A., Rhodes, B., Starmer, C., Sugden, R.: A test of the theory of reference-dependent preferences. Q. J. Econ. 112(2), 479–505 (1997)CrossRef

Bateman, I., Kahneman, D., Munro, A., Starmer, C., Sugden, R.: Testing competing models of loss aversion: an adversarial collaboration. J. Public Econ. 89(8), 1561–1580 (2005). doi:10.1016/j.jpubeco.2004.06.013 CrossRef

Bleichrodt, H., Pinto, J.L., Wakker, P.P.: Making descriptive use of prospect theory to improve the prescriptive use of expected utility. Manag. Sci. 47(11), 1498–1514 (2001). doi:10.1287/mnsc.47.11.1498.10248 CrossRef

Brook, R.H., Ware, J.E., Rogers, W.H., Keeler, E.B., Davies, A.R., Donald, C.A., Goldberg, G.A., Lohr, K.N., Mastay, P.C., Newhouse, J.P.: Does free care improve adults’ health? Results from a randomized controlled trial. New. Eng. J. Med. 309(23), 1426–1434 (1983). doi:10.1056/NEJM198312083092305 PubMedCrossRef

Camerer, C., Weber, M.: Recent developments in modeling preferences: uncertainty and ambiguity. J. Risk Uncertain. 5(4), 325–370 (1992). doi:10.1007/BF00122575 CrossRef

Chetty, R., Szeidl, A.: Consumption commitments and risk preferences. Q. J. Econ. 122(2), 831–877 (2007). doi:10.3386/w12467 CrossRef

Chow, C.C., Sarin, R.K.: Comparative ignorance and the Ellsberg paradox. J. Risk Uncertain. 22(2), 129–139 (2001). doi:10.1023/A:1011157509006 CrossRef

10.

Ellsberg, D.: Risk, ambiguity, and the savage axioms. Q. J. Econ. 75(4), 643–669 (1961)CrossRef

11.

Elsevier.: Zorgverzekeraars voor afschaffing no-claim. http://www.elsevier.nl/Nederland/nieuws/2006/3/Zorgverzekeraars-voor-afschaffing-no-claim-ELSEVIER072337W/ (2006). (in Dutch)

12.

Friedman, M., Savage, J.: The utility analysis of choice involving risk. J. Polit. Econ. LVI 4, 279–304 (1948)CrossRef

13.

Frisch, D., Baron, J.: Ambiguity and rationality. J. Behav. Decis. Mak. 1(3), 149–157 (1988). doi:10.1002/bdm.3960010303 CrossRef

14.

Folland, S., Goodman, A.C., Stano, M.: The economics of health and health care. Pearson, New Jersey (2010)

15.

Fox, C.R., Weber, M.: Ambiguity aversion, comparative ignorance, and decision context. Organ. Behav. Hum. Decis. Process. 88(1), 476–498 (2002). doi:10.1006/obhd.2001.2990 CrossRef

16.

Gorter, J., Schilp, P.: DNB working paper No. 338. Risk preferences over small stakes: evidence from deductible choice. De Nederlandse Bank NV, Amsterdam (2012)

17.

Heath, C., Tversky, A.: Preference and belief: ambiguity and competence in choice under uncertainty. J. Risk Uncertain. 4(1), 5–28 (1991). doi:10.1007/BF00057884 CrossRef

18.

Heath, C., Soll, J.B.: Mental budgeting and consumer decisions. J. Consum. Res. 23(1), 40–52 (1996)CrossRef

19.

Hershey, J.C., Kunreuther, H.C., Schoemaker, P.J.H.: Sources of bias in assessment procedures for utility functions. Manag. Sci. 28(8), 936–954 (1982). doi:10.1287/mnsc.28.8.936 CrossRef

20.

Hershey, J.C., Schoemaker, P.J.H.: Probability versus certainty equivalence methods in utility measurement: are they equivalent? Manag. Sci. 31(10), 1213–1231 (1985). doi:10.1287/mnsc.31.10.1213 CrossRef

21.

Holland, J., van Exel, N.J.A., Schut, F.T., Brouwer, W.B.F.: Some pain, no gain: experiences with the no-claim rebate in the Dutch health care system. Health Econ. Policy Law 4(04), 405–424 (2009). doi:10.1017/S1744133109004861 PubMedCrossRef

22.

Hsu, J., Reed, M., Brand, R., Fireman, B., Newhouse, J.P., Selby, J.V.: Cost-sharing: patient knowledge and effects on seeking emergency department care. Med. Care 42(3), 290–296 (2004). doi:10.1097/01.mlr.0000114917.50457.52 PubMedCrossRef

23.

Hurley, J.E., Guindon, G.E.: Medical savings accounts: promises and pitfalls. In: Jonsson, E., Lu, M. (eds.) Financing health care: new ideas for a changing society, pp. 125–147. Wiley, Weinheim (2008)

24.

Hurley, J.: User charges for health care services: some further thoughts. Health. Econ. Policy Law 8(04), 537–541 (2013). doi:10.1017/S1744133113000297 PubMedCrossRef

25.

Johnson, E.J., Hershey, J., Meszaros, J., Kunreuther, H.: Framing, probability distortions, and insurance decisions. J. Risk Uncertain. 7, 35–51 (1993)CrossRef

26.

Kahneman, D., Tversky, A.: Prospect theory: an analysis of decision under risk. Econometrica 47(2), 263–291 (1979)CrossRef

27.

Kahneman, D., Miller, D.T.: Norm theory: comparing reality to its alternatives. Psychol. Rev. 93(2), 136–153 (1986). doi:10.1037/0033-295X.93.2.136 CrossRef

28.

Katona, G.: Psychological economics. Elsevier, New York (1975)

29.

Keppe, H.-J., Weber, M.: Judged knowledge and ambiguity aversion. Theory Decis. 39(1), 51–77 (1995). doi:10.1007/BF01078869 CrossRef

30.

Kling, J.R., Mullainathan, S., Shafir, E., Vermeulen, L.C., Wrobel, M.V.: Comparison friction: experimental evidence from Medicare drug plans. Q. J. Econ. 127(1), 199–235 (2012). doi:10.3386/w17410 PubMedPubMedCentralCrossRef

31.

Krieger, M., Felder, S.: Can decision biases improve insurance outcomes? An experiment on status quo bias in health insurance choice. Int. J. Environ. Res. Public Health 10(6), 2560–2577 (2013). doi:10.3390/ijerph10062560 PubMedPubMedCentralCrossRef

32.

Liebman, J.B., Zeckhauser, R.J.: Schmeduling. Harvard University Working Paper (2004)

33.

Low, L., Yee, Y.: Using behavioural insights to improve individual health decisions. In: Low, D. (ed.) Behavioural economics and policy design: examples from Singapore, pp. 127–145. Civil Service College, Singapore (2012)

34.

Markowitz, H.: The utility of wealth. J. Polit. Econ. 60(2), 151–158 (1952)CrossRef

35.

Marquis, M.S.: Consumers’ knowledge about their health insurance coverage. The Rand Corporation, Santa Monica (1981)

36.

Moshinsky, A., Bar-Hillel, M.: Loss aversion and status quo label bias. Soc. Cogn. 28(2), 191–204 (2010). doi:10.1521/soco.2010.28.2.191 CrossRef

37.

Newhouse, J.P., Rand Corporation. Insurance Experiment Group: Free for all?: lessons from the RAND Health Insurance Experiment. Harvard University Press, Cambridge (1993)

38.

Novemsky, N., Kahneman, D.: The boundaries of loss aversion. J. Mark. Res. 42(2), 119–128 (2005). doi:10.1509/jmkr.42.2.119.62292 CrossRef

39.

Novemsky, N., Kahneman, D.: How do intentions affect loss aversion? J. Mark. Res. 42(2), 139–140 (2005). doi:10.1509/jmkr.42.2.139.62295 CrossRef

40.

Nyhus, E.K., Webley, P.: Discounting, self-control, and saving. In: Altman, M. (ed.) Handbook of contemporary behavioural economics: foundations and developments, pp. 297–325. M.E. Sharpe Inc, New York (2006)

41.

Pauly, M.V.: The economics of moral hazard: comment. Am. Econ. Rev. 58(3), 531–537 (1968)

42.

Pratt, J.W.: Risk aversion in the small and in the large. Econometrica 32, 122–136 (1964)CrossRef

43.

Prelec, D., Loewenstein, G.: The red and the black: mental accounting of savings and debt. Mark. Sci. 17(1), 4–28 (1998). doi:10.1287/mksc.17.1.4 CrossRef

44.

Reed, M., Fung, V., Price, M., Brand, R., Benedetti, N., Derose, S.F., Newhouse, J.P., Hsu, J.: High-deductible health insurance plans: efforts to sharpen a blunt instrument. Health Aff. 28(4), 1145–1154 (2009). doi:10.1377/hlthaff.28.4.1145 CrossRef

45.

Reitsma-van Rooijen, M., Brabers, A.E.M., de Jong, J.D.: Veel zorggebruikers verwachten belemmeringen voor noodzakelijk zorggebruik bij een verplicht eigen risico van 350 euro. NIVEL, Utrecht (2012) (in Dutch)

46.

Rice, T.: The behavioural economics of health and health care. Annu. Rev. Public Health 34, 431–447 (2013). doi:10.1146/annurev-publhealth-031912-114353 PubMedCrossRef

47.

Ritov, I., Baron, J.: Reluctance to vaccinate: omission bias and ambiguity. J. Behav. Dec. Mak. 3(4), 263–277 (1990). doi:10.1002/bdm.3960030404 CrossRef

48.

Ritov, I., Baron, J.: Status-quo and omission biases. J. Risk Uncertain. 5(1), 49–61 (1992). doi:10.1007/BF00208786 CrossRef

49.

Rothschild, M., Stiglitz, J.E.: Equilibrium in competitive markets: an essay on the economics of imperfect information. Q. J. Econ. 90(4), 629–649 (1976)CrossRef

50.

Samuelson, W., Zeckhauser, R.: Status-quo bias in decision making. J. Risk Uncertain. 1(1), 7–59 (1988). doi:10.1007/BF00055564 CrossRef

51.

Schut, F.T., van de Ven, W.P.M.M.: Effects of purchaser competition in the Dutch health system: is the glass half full or half empty? Health Econ. Policy Law 6(01), 109–123 (2011). doi:10.1017/S1744133110000381 PubMedCrossRef

52.

Schmidt, U.S.: Insurance demand under prospect theory: a graphical analysis. Kiel Working Paper, No. 1764 (2012)

53.

Schoemaker, P.J.H., Kunreuther, H.C.: An experimental study of insurance decisions. J. Risk Insur. 46(4), 603–618 (1979)CrossRef

54.

Smith, P.C.: Universal health coverage and user charges. Health Econ. Policy Law 8(04), 529–535 (2013). doi:10.1017/S1744133113000285 PubMedCrossRef

55.

Strombom, B.A., Buchmueller, T.C., Feldstein, P.J.: Switching costs, price sensitivity and health plan choice. J. Health Econ. 21(1), 89–116 (2002). doi:10.1016/S0167-6296(01)00124-2 PubMedCrossRef

56.

Sydnor, J.: (Over)insuring modest risks. Am. Econ. J. App. Econ. 2(4), 177–199 (2010). doi:10.1257/app.2.4.177 CrossRef

57.

Thaler, R.: Toward a positive theory of consumer choice. J. Econ. Behav. Organ. 1(1), 39–60 (1980). doi:10.1016/0167-2681(80)90051-7 CrossRef

58.

Thaler, R.: Mental accounting and consumer choice. Mark. Sci. 4(3), 199–214 (1985). doi:10.1287/mksc.4.3.199 CrossRef

59.

Thaler, R.H.: Mental accounting matters. J. Behav. Decis. Mak. 12(3), 183–206 (1999)CrossRef

60.

Thaler, R.H., Benartzi, S.: Save More Tomorrow: using behavioral economics to increase employee saving. J. Polit. Econ. 112(S1), S164–S187 (2004). doi:10.1086/380085 CrossRef

61.

Thaler, R.H., Sunstein, C.R.: Nudge: improving decisions about health, wealth and happiness. Penguin Books, London (2009)

62.

Tversky, A., Kahneman, D.: Advances in prospect theory: cumulative representation of uncertainty. J. Risk Uncertain. 5(4), 297–323 (1992). doi:10.1007/BF00122574 CrossRef

63.

Tversky, A., Fox, C.R.: Weighing risk and uncertainty. Psychol. Rev. 102(2), 269–283 (1995)CrossRef

64.

Van Kleef, R.C., van de Ven, W.P.M.M., van Vliet, R.C.J.A.: A voluntary deductible in social health insurance with risk equalization: “community-rated or risk-rated premium rebate?”. J. Risk Insur. 73(3), 529–550 (2006). doi:10.1111/j.1539-6975.2006.00187.x CrossRef

65.

Van Winssen, K.P.M., van Kleef, R.C., van de Ven, W.P.M.M.: How profitable is a voluntary deductible in health insurance for the consumer?’. Health Policy 119(5), 688–695 (2015). doi:10.1016/j.healthpol.2015.02.009 PubMedCrossRef

66.

Vektis: Verzekerdenmobiliteit en keuzegedrag: dé feiten over de marktontwikkelingen na invoering van de basisverzekering. Vektis, Zeist (2006) (in Dutch)

67.

Vektis: Zorgthermometer: verzekerden in beweging 2014. Vektis, Zeist (2014) (in Dutch)

68.

Von Neumann, J., Morgenstern, O.: Theory of Games and Economic Behaviour. Princeton University Press, Princeton (1944)

69.

Wakker, P.P., Timmermans, D.R.M., Machielse, I.: The effects of statistical information on risk and ambiguity attitudes, and on rational insurance decisions. Manag. Sci. 53(11), 1770–1784 (2007). doi:10.1287/mnsc.1070.0735 CrossRef

70.

Wakker, P.P.: Prospect theory: for risk and ambiguity. Cambridge University Press, Cambridge (2010)CrossRef

71.

Wicker, F.W., Hamman, D., Hagen, A.S., Reed, J.L., Wiehe, J.A.: Studies of loss aversion and perceived necessity. J. Psychol. 129(1), 75–89 (1995). doi:10.1080/00223980.1995.9914949 CrossRef

72.

Wilkinson, N.: An introduction to behavioural economics. Palgrave Macmillan, New York (2008)

73.

Zweifel, P., Manning, W.: Moral hazard and consumer incentives in health care. In: Culyer, A.J., Newhouse, J.P. (eds.) Handbook of Health Economics, vol. 1, pp. 409–459. Elsevier, Amsterdam (2000). doi:10.1016/S1574-0064(00)80167-5

74.

Zweifel, P., Breuer, M.: The case for risk-based premiums in public health insurance. Health Econ. Policy Law 1(02), 171–188 (2006). doi:10.1017/S1744133105001064 PubMedCrossRef

Title: Potential determinants of deductible uptake in health insurance: How to increase uptake in The Netherlands?
Authors: K. P. M. van Winssen
R. C. van Kleef
W. P. M. M. van de Ven
Publication date: 01-12-2016
Publisher: Springer Berlin Heidelberg
Published in: The European Journal of Health Economics / Issue 9/2016
Print ISSN: 1618-7598
Electronic ISSN: 1618-7601
DOI: https://doi.org/10.1007/s10198-015-0745-2

At a glance: The ONWARDS insulin icodec trials

Springer Medicine

Potential determinants of deductible uptake in health insurance: How to increase uptake in The Netherlands?

Abstract

At a glance: The ONWARDS insulin icodec trials

Springer Medicine

Abstract

Please log in to get access to this content

Other articles of this Issue 9/2016

Cost-effectiveness of linaclotide compared to antidepressants in the treatment of irritable bowel syndrome with constipation in Scotland

Work productivity loss and indirect costs associated with new cardiovascular events in high-risk patients with hyperlipidemia: estimates from population-based register data in Sweden

Exploring the determinants of endocrinologist visits by patients with diabetes

A review of economic evaluation models for cardiac resynchronization therapy with implantable cardioverter defibrillators in patients with heart failure

Does smoke cross the border? Cigarette tax avoidance in France

The hidden economic burden of air pollution-related morbidity: evidence from the Aphekom project