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Is the voluntary deductible in health insurance useful?

Datum:27 augustus 2020
Is the deductible in health insurance useful?
Is the deductible in health insurance useful?

Blog by health economist Laura Viluma
Every year around November, a discussion in the Dutch media and politics arises about the mandatory health insurance. One of the most discussed features of the Dutch insurance system is the deductible - the amount paid out of pocket by the policy holder before an insurance provider will pay any expenses (eigen risico, nl.).

The Dutch Health Insurance System

The Dutch Health Insurance Act, introduced in 2006, requires individuals to take out basic health insurance from a private health insurer that covers a pre-defined package of necessary medical care. Health insurers are obligated to accept everybody for basic insurance for the same premium. Adults are required to cover deductible of €385 (2020) per year. On top of that, individual adults can opt for a voluntary deductible (vrijwillige eigen risico, nl.) of up to €500 per year.

The Debate

The purpose of the deductible is to introduce market forces in the system that would create incentives for the consumers to consider the cost of medical care, choose the cheaper options when possible, and avoid unnecessary trips to the doctor. As a result, that would help to manage the total health care costs.

The opponents of the voluntary deductible argue that it decreases the solidarity in the health insurance system, meaning that the voluntary deductible serves as a premium-reduction tool for young and healthy individuals and that, in turn, leads to higher insurance premiums for individuals with poor health.

The Study

To provide evidence for this policy debate, we studied the health care consumption behavior of 2939 individuals from the Longitudinal Internet Studies for the Social sciences panel (www.lissdata.nl) over seven years. This study aims to answer two questions. First, we studied whether individuals choose the size of their voluntary deductible based on their expected health care costs. Our study shows that, indeed, older individuals and those with chronic conditions are less likely to opt for a voluntary deductible, while men, highly educated, and healthy people are more likely to choose it. Interestingly, this is not true for mental health – individuals with good mental health are less likely to take the voluntary deductible.

The second question our study answers is, whether, after accounting for differences in health status and other characteristics, individuals change their healthcare consumption behavior when they have to pay a larger deductible compared to when the deductible amount is smaller. The short answer is that they do. We found that when individuals have the voluntary deductible, they are less likely to visit a doctor, mental health specialist or hospital in the given year and if they need to visit a doctor the number of visits is lower. On contrast, if the person is hospitalized, the length of the hospital stay is longer for those with the deductible. This means that when individuals have higher costs out of pocket, they avoid or postpone healthcare for less-severe problems, but not for serious health issues.

From a societal perspective these results relieve the concerns about the loss of solidarity, because the voluntary deductible is not only an attractive feature for the young and healthy individuals, but it also encourages them to reduce healthcare consumption for milder ailments. In that sense, the deductible is an effective policy tool. 

Alessie, R.J., Angelini, V., Mierau, J.O. and Viluma, L., 2020. Moral hazard and selection for voluntary deductibles. Health Economics.

Link to the study: https://doi.org/10.1002/hec.4134