Can risk rating increase the ability of voluntary deductibles to reduce moral hazard?

M. Antonini*, RC (Richard) van Kleef, J. Henriquez, F. Paolucci

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review

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Several regulated health insurance markets include the option for consumers to choose a voluntary deductible. An important motive for this option is to reduce moral hazard. In return for a voluntary deductible, consumers receive a premium rebate, which is typically community rated. Under community rating, voluntary deductibles are particularly attractive for low-risk consumers. Since these people use relatively little medical care, the total moral hazard reduction might be relatively small compared to the total healthcare spending. This paper examines the potential moral hazard reduction under risk-rated premiums. We use Chile as a case study due to institutional features that make it a valid benchmark for other countries. Our simulations show that in the presence of self-selection and under a uniform percentage moral hazard reduction across risk types, the absolute moral hazard reduction from a voluntary deductible is indeed expected to be larger in a system with risk-rated premiums than in a system with community-rated premiums. Nevertheless, sensitivity checks show that this conclusion might no longer hold as the percentage moral hazard reduction is lower for high-risk individuals compared to low-risk individuals.

Original languageEnglish
Pages (from-to)130-156
Number of pages27
JournalGeneva Papers on Risk and Insurance: Issues and Practice
Issue number1
Early online date2 Nov 2021
Publication statusPublished - Jan 2023

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© 2021, The Geneva Association.


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