TY - JOUR
T1 - Spot price biases in non-linear health insurance contracts
AU - Simonsen, Marianne
AU - Skipper, Lars
AU - Skipper, Niels
AU - Christensen, Anne Illemann
N1 - Publisher Copyright:
© 2021 Elsevier B.V.
PY - 2021/11
Y1 - 2021/11
N2 - 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.
AB - 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.
KW - Intertemporal shifting
KW - Non-linear pricing
KW - Prescription drugs
UR - http://www.scopus.com/inward/record.url?scp=85115762324&partnerID=8YFLogxK
U2 - 10.1016/j.jpubeco.2021.104508
DO - 10.1016/j.jpubeco.2021.104508
M3 - Journal article
AN - SCOPUS:85115762324
SN - 0047-2727
VL - 203
JO - Journal of Public Economics
JF - Journal of Public Economics
M1 - 104508
ER -