How do people respond to a foreseeable increase in cost-sharing?

The generosity of a health insurance plan, meaning the extent of coverage it provides, involves a fundamental trade-off. The more generous the coverage, the better it is for the insured individuals. However, more comprehensive insurance coverage also leads to disproportionately higher premiums. This is because insured individuals are incentivized to use more services than they would if they had to pay the full cost out-of-pocket. To counteract this incentive, most insurance contracts include some form of cost-sharing.

In practice, cost-sharing is often structured on an annual basis. As a result, the proportion of treatment costs that a patient must pay out-of-pocket is typically higher at the beginning of the year than at the end. In other words, the "price" for the patient is lower in December than in January. This could encourage patients to schedule elective treatments in December rather than January, potentially undermining the cost-containment effects of cost-sharing.

There is now evidence that patients do delay treatments to minimize their out-of-pocket costs. However, it remains unclear whether these price changes over time only affect the timing of treatments or also influence overall demand. We aim to address the question of whether temporal variation in cost-sharing diminishes its effectiveness.

To study how future changes in cost-sharing affect demand, we need two groups. Members of both groups should face the same cost-sharing today but different cost-sharing in the future. Additionally, group assignment must be random; otherwise, observed demand would depend on how members choose their groups. The Swiss healthcare system provides such a scenario for individuals who “become adults”.

For adults aged 18 and older, the standard deductible is CHF 300, compared to zero francs for children. Similarly, the annual maximum co-payment increases from CHF 350 to CHF 700. Thus, cost-sharing increases when insured individuals become adults. However, since health insurance operates on an annual basis, this transition doesn’t occur on a person’s birthday but at the start of the next calendar year.

As a result, individuals with a birthday on December 31, 2005, are considered “adults” in 2024, while those born just one day later, on January 1, 2006, are still considered “children”. Because the timing of birth around the new year is random, this creates an ideal scenario. In 2023, both groups face the same cost-sharing, but this changes in 2024. This allows us to analyze how future price changes influence present demand.

The results show an increase in healthcare expenditures among men who know they will bear higher costs in the following year. On average, they increase their spending on outpatient treatments by about CHF 40, or approximately 5%. This effect is particularly pronounced among men who had relatively low healthcare utilization before their 18th birthday. This group has a strong incentive in the last year before the price increase to bring forward their doctor visits before the higher deductible and co-payment come into effect.

Interestingly, this behavioral adjustment is mainly observed in visits to specialists. The likelihood of a man visiting a specialist in the last year before the price increase rises by 7%. This suggests that men are prioritizing medical treatments they would normally postpone to save costs. The effect is less pronounced for general practitioner visits, indicating that specialist visits are more likely to involve planned, non-urgent treatments.

Surprisingly, women exhibit significantly less forward-looking behavior. While men show a notable increase in healthcare expenditures, women’s expenditures remain almost unchanged on average. The reasons for these differences are varied. One possible explanation is that women generally plan their healthcare spending differently and may respond less strongly to financial incentives. It is also possible that women, on average, use regular healthcare services more frequently, leaving them with less flexibility to adjust their expenditures in advance.

The study reveals that young people, particularly men, adjust their healthcare behavior when they know their cost-sharing will increase in the coming year. These findings are significant for both health insurers and health policy. They demonstrate that forward-looking behavior can influence the demand for healthcare services and that the design of health insurance plans should take these behavioral patterns into account.