Spot price biases in non-linear health insurance contracts

Marianne Simonsen*, Lars Skipper, Niels Skipper, Anne Illemann Christensen


Publikation: Bidrag til tidsskriftTidsskriftartikelForskningpeer review


We study an apparent schism in the literature concerned with non-linear health insurance plans: consumers exposed to the same type of policy appear forward-looking and rational in their response to one policy feature – the end-of-year coverage reset – but not to another – that current prices depend on the year-to-date spending in a non-linear fashion. We exploit policy variation from within a unified institutional environment and uses of population-wide data. We replicate both phenomena empirically: consumers both shift the timing of their purchases in response to the end-of-year reset and react excessively to spot prices during the coverage year. Importantly, however, we show that also the end-of-year behavior is due to over-attention to short-run prices. Specifically, consumers respond entirely to the large and salient change in the spot price in connection with the reset of the coverage year, conditional on the true expected price change. We find that liquidity constraints, rather than plan literacy and cognitive decline are important for understanding the spot price bias.

TidsskriftJournal of Public Economics
StatusUdgivet - nov. 2021

Bibliografisk note

Funding Information:
Christensen contributed to the collection and interpretation of auxiliary data from the Danish National Health Interview Surveys and approved the final version of the manuscript. We greatly appreciate comments and thoughtful guidance from our editor Joshua Gottlieb and two anonymous referees. We also received useful feedback from Mette Trier Damgaard, Meltem Daysal, Nicolai Kristensen, S?ren Leth-Petersen, Helena Skyt Nielsen, Daniel Sacks, Jeff Smith, Allan S?rensen, and Mircea Trandafir as well as participants at the 2016 ASHEcon and seminar participants at Copenhagen Business School; the University of Copenhagen; the University of Southern Denmark; DIW, Berlin; Lund University; the University of Maryland; the University of Michigan; the University of Stockholm; Ifo Institute, Munich; the University of Passau; and IRVAPP. The usual disclaimer applies. Funding sources: This research did not receive any specific grant from funding agencies in the public, commercial, or not-for-profit sectors.

Publisher Copyright:
© 2021 Elsevier B.V.


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