Does premium subsidization influence deductible choices?
To make health insurance premiums affordable for individuals and families with modest financial means, they receive individual premium subsidies. However, some beneficiaries receive subsidies exceeding the premium amount. Does this lead them to opt for better insurance coverage and lower deductibles?
Since health insurance premiums in Switzerland are not income-based, they are individually subsidized for people and families with modest economic means to reduce financial burden. Like all need-based support programs, the question arises: how should the money reach the beneficiaries? One approach is direct transfer to the recipients' accounts, akin to a cash transfer. This allows beneficiaries to decide when and how to use the funds. Alternatively, the funds can be paid directly to the health insurer, resulting in reduced premium bills - a "benefit-in-kind" approach. This ensures that the funds are used for the subsidized purpose but may influence purchasing decisions, particularly if unused funds expire. In this context, beneficiaries might opt for better insurance coverage if the subsidy is delivered as a benefit-in-kind rather than a cash payment. We explored this for Switzerland.
Federalism as a laboratory
Analyzing recipients’ responses to different payment mechanisms is usually challenging, as policies typically favor one mechanism. However, due to Switzerland’s federal structure, both mechanisms coexisted until 2014: some cantons provided premium subsidies as benefits-in-kind, while others opted for cash transfers. This allowed us to analyze the impact of payment mechanisms on deductible choices. The analysis is based on data from the Swiss Health Survey, which is conducted every five years. These data provide detailed information on health insurance choices, health status, and healthcare utilization. Moreover, we could identify individual premium subsidy recipients, enabling a causal estimate of the effect on deductible choice by comparing survey participants across payment mechanisms and recipient status.
Lower deductibles due to benefits-in-Kind
The results reveal that benefits-in-kind increase the likelihood of premium subsidy recipients choosing a low deductible. The effect is approximately four percentage points, representing a relative increase of seven percent. This suggests that benefits-in-kind incentivize better insurance coverage. Interestingly, not all individuals respond equally to this incentive. The effect is more pronounced among women, higher-educated individuals, and unmarried persons. However, the improved insurance coverage, reflected by lower deductibles, does not seem to affect healthcare utilization, such as doctor visits. The effect of the payment mechanism on deductible choice is small, and the sample size is insufficient to detect measurable increases in healthcare usage. Additionally, low-income households may remain deterred from healthcare spending due to general financial constraints, even with lower deductibles.
Flexibility or earmarking?
Our research provides valuable insights for designing need-based support programs. While cash payments offer recipients greater flexibility and freedom, benefits-in-kind ensure funds are used for their intended purpose. In this case, the benefit-in-kind mechanism leads recipients to improve their insurance coverage. However, the overall effect appears limited, as indicated by unchanged healthcare demand. Consequently, the decision to implement benefits-in-kind for premium subsidies in all cantons from 2014 likely had little to no effect on healthcare costs.
