March 2020

IZA DP No. 13108: The Response to Dynamic Incentives in Insurance Contracts with a Deductible: Evidence from a Differences-in-Regression-Discontinuities Design

Tobias J. Klein, Martin Salm, Suraj Upadhyay

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 €100 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.