DP18395 Patient cost-sharing and risk solidarity in health insurance
Health insurance often features risk solidarity, meaning that money is redistributed from individuals with low health risks to individuals with high health risks. This paper studies whether more cost-sharing leads to less risk solidarity and lower welfare of high-risk individuals. This could be the case because more cost-sharing increases out-of-pocket payments especially for high-risk individuals. We estimate a structural model of healthcare consumption using administrative data from a Dutch health insurer. We use the model to simulate the effects of a host of counterfactual policies. The policy that was in place was a 350 euro deductible. Our counterfactual experiments show that risk solidarity would decrease when the deductible would increase. Nonetheless, high-risk individuals can benefit from higher levels of cost-sharing. The reason is that this leads to lower premiums because both high-risk and low-risk individuals strongly react to the financial incentives cost-sharing provides.