Timing Moral Hazard under Deductibles in Health Insurance

Abstract

This paper develops a new approach to identifying to what extent individuals strategically time their healthcare consumption under deductibles in health insurance. I set up a dynamic model of healthcare consumption where individuals exceed a high deductible after a large health shock, and have an incentive to prepone care planned for the next year. The model elicits the links between timing and classical moral hazard responses, as well as deductible choice, and highlights trade-offs for insurance policy. It also serves to show that pure timing moral hazard can be identified using random variation in the timing of the health shock within the calendar year. Empirically, I find quantitatively large timing moral hazard in the context of mandatory health insurance in Switzerland. This response can create important distortions in insurance markets by shifting out-of-pocket healthcare costs onto the risk pool. Its extent decreases with the time available until the deductible reset. The insured do re-optimise on-the-go after the shock, but face substantial frictions in retiming.

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