Does the Framing of Patient Cost-sharing Incentives Matter? The Effects of Deductibles vs. No-claim Refunds

Research question and motivation

In light of increasing health care expenditures, patient cost-sharing schemes have emerged as one of the main policy tools to reduce medical spending. In this study we show that health care utilization is affected not only by the economic incentives provided by cost-sharing schemes, but also by the way these economic incentives are presented. Specifically, we compare patients’ responses to a deductible and to a no-claim refund. The economic incentives under a deductible and a no-claim refund are very similar, but they are framed in a different way. Under a deductible policy, individuals pay out-of-pocket for all medical care up to the deductible limit. Under a no-claim refund policy, individuals receive a payment at the end of the year if their health care spending during the year was below the no-claim refund limit. Prospect theory predicts that individuals respond stronger to losses than to gains. If individuals perceive deductible payments as losses and lower no-claim refunds as foregone gains then we might expect that individuals will react stronger to deductibles than to no-claim rebates.

Data and methods

We make use of the fact that in the Netherlands, both schemes have been in place at different points of time while the patient population and the services covered by health insurance remained comparable. In the years 2006 and 2007 Dutch law has mandated that health insurance contracts included a no-claim refund, and from the year 2008 onward, health insurance contracts had to feature an annual deductible. Our analysis is based on unique claims-level data from a Dutch health insurer for the years 2006-2015 which we aggregate to around 9 million person month observations. In our empirical strategy we exploit variation in cost-sharing incentives within a year. Under both a deductible policy and a no-claim refund the price of healthcare utilization can vary over the course of the year depending on whether or not an individual has exceeded her deductible or no-claim refund limit. We examine how the reaction to prices differs between the years when a no-claim refund policy was in place and the years when a deductible policy was in place. We account for the possible endogeneity of prices with a simulated instrumental variables approach. As instrumental variable for the price at the beginning of the month we use a simulated average price for people with the same risk score decile, age, and gender in a given year.

Results and conclusions

We find that patients react to comparable incentives twice as strongly when they are implemented as a deductible, which suggests that the framing of incentives can be quantitatively almost as important as the incentive itself. Our preferred explanation is that individuals are loss-averse and respond differently to both schemes because they perceive a deductible payment as a loss and a no-claim refund as a gain. Our results are robust to a number of sensitivity analyses. Specifically, our results cannot be explained by differences in the timing of payments, or by end of year effects.