Aging of Society and New Medical Technology: The Challenge for Health Insurers to Meet the Expectations of Consumers and Governments

Conclusion 3:
Limiting moral hazard towards the end of human life by a deductible meets with marked resistance both in the Netherlands and Germany. Required compensation in term of a premium reduction required would be especially high among the Dutch, likely because they already are exposed to an income risk in the event of short-term disability. By way of contrast, offering a rebate for no claims in the same amount would be welcomed by the Germans, including their highest age group.

Resistance against a higher deductible was also found in a DCE involving Swiss citizens in 2005 (Becker-Leukert and Zweifel, 2007). One of the changes considered was an increase from the legal minim of CHF 230 annually to CHF 1,500 (1 Swiss franc CHF = 0.8 US$ at 2005 exchange rates). The top age group (63 and higher this time) would have to be compensated by CHF 720 or some 22 percent of average premium to voluntarily accept this increase, compared to CHF 456 in the 25-39 age group.
It is tempting to conclude that limited reductions in premium are sufficient to win the aged over for new types of policies designed to limit moral hazard in the proximity of death. However, one needs to consider the bottom line of Table 1. The values exhibited there indicate that a substantial additional compensation would have to be offered to make consumers break away from the status quo. Among Dutch respondents, this amount reaches Euro 479/year in the highest age group, among their German counterparts, even Euro 940/year. Evidently, aged citizens of both countries display extremely strong status quo bias. Two details are noteworthy. First, status quo bias is much stronger in Germany than in the Netherlands. One likely reason is that Germans had been exposed for about a decade to ever-changing reform proposals that never succeeded. By way of contrast, the Dutch reform of 2005 had mandated every citizen to actually choose a health insurance policy; just keeping a policy by default was not permitted. Therefore, the Dutch respondents had been made to bear the cost of decision-making at the time the DCE was fielded in 2006. Second, status quo bias increases strongly with age in both countries. This commonly found phenomenon has sometimes been interpreted as a sign of irrationality. However, both its existence and its increase with age reflect sound economic behavior. After all, studying and getting to understand a new health insurance policy constitutes a substantial investment of time which needs to be compensated; hence the negative WTP values. The payoff to this investment could be a reduction in future premiums. Yet for older consumers the present value of this potential stream of benefits is less than for younger ones – precisely because they are closer to death.

Conclusion 4.
The decisive challenge facing a health insurer seeking to introduce policies designed to mitigate the ‘cost explosion just before death’ may well be to overcome consumers’ status quo bias, which may depend on the recent history of (attempted) healthcare reforms but is generally most marked among the older age groups.

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