DP14552 The Response to Dynamic Incentives in Insurance Contracts with a Deductible: Evidence from a Differences-in-Regression-Discontinuities Design

Author(s): Tobias Klein, Martin Salm, Suraj Upadhyay
Publication Date: April 2020
Keyword(s): Dynamic incentives, Health Insurance, Patient cost-sharing
JEL(s): H51, I13
Programme Areas: Labour Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=14552

We develop a new approach to quantify how patients respond to dynamic incentives in health insurance contracts with a deductible. Our approach exploits two sources of variation in a differences-in-regression-discontinuities design: deductible contracts reset at the beginning of the year, and cost-sharing limits change over the years. Using rich claims-level data from a large Dutch health insurer we find that individuals are forward-looking. Changing dynamic incentives by increasing the deductible by e100 leads to a reduction in healthcare spending of around 3% on the first days of the year and 6% at the annual level. The response to dynamic incentives is an important part of the overall effect of cost-sharing schemes on healthcare expenditures-much more so than what the previous literature has suggested.