Deductible choice and selection on moral hazard: An instrumental variable approach using Swiss Household Panel Data

Abstract

Moral hazard and adverse selection have been widely studied in relation to health insurance coverage choices. A related concept is that of selection on moral hazard, namely that individuals may select a specific coverage as a result of anticipated behavioural responses to future needs. Using data for Switzerland, we try to measure this dynamic moral hazard effect with an instrumental variable approach which tries to overcome the intrinsic endogeneity predicted by adverse selection. Focusing on future visits to a doctor as measure of future needs, our IV estimates suggest that individuals decrease their deductible level by an amount between 349 and 1’067 Swiss francs, depending on the sample analysed. On the intensive margin, doubling the number of future doctor visits is associated with an average reduction in yearly deductible between 118 and 424 Swiss Francs. The results reveal a substantial “anticipation effect” of future healthcare costs in the choice of future deductibles, consistently with an effect of selection on moral hazard. Our study suggest (1) that simple measures of adverse selection based on individuals self-selecting into deductible levels based on risk type may be biased upwards and (2) that there is scope to improve market regulation in Switzerland.

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