Timing Moral Hazard under Deductibles in Health Insurance

This paper develops a new approach to identifying timing moral hazard in health insurance contracts when deductible choice is endogenous. I set up a dynamic model of healthcare consumption where individuals exceed a high deductible after a large health shock. I show that individuals either strategically prepone care from the year after the shock and keep a high deductible, or do not retime and switch to a low deductible the year after. The identification of timing moral hazard exploits the randomness of shock timing within a calendar year. Empirical results show quanti- tatively large timing moral hazard responses, which decrease with the time left to the deductible reset. The insured do re-optimize on-the-go to minimize out-of-pocket costs, but face substantial frictions in retiming, which differ across types of care. These patterns bear implications for cost sharing and insurance policy.

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