Incentivizing efficient utilization without reducing access: The case against cost-sharing in insurance

Cost-sharing is regarded as an important tool to reduce moral hazard in health insurance. Contrary to standard prediction, however, such requirements are found to decrease utilization both of efficient and of inefficient care. I employ a simple model that incorporates two possible explanations—consumer mistakes and limited access—to assess the welfare implications of different insurance designs. I find cost-sharing never to be an optimal solution as it produces two novel inefficiencies by limiting access. An alternative design, relying on bonuses, has no such side effects and achieves the same incentivization. I show how the optimal design can be deduced empirically and discuss possible impediments to its implementation

When the affordable has no value, and the valuable is unaffordable: The U.S. market for longterm care insurance and the role of Medicaid

I consider the popular argument of Medicaid crowding out demand for private long-term care insurance. I show that this argument rests on a wrong counterfactual comparison. Furthermore, I question the welfare-decreasing impact of Medicaid as it neglects a large value of the program in providing access to care. I show that private insurance is unable to offer a similar value. I posit that the low take-up of private insurance is due to a dilemma prevalent in - but not exclusive to - the market for long term care insurance: a dilemma between access and affordability. Several empirical patterns in insurance uptake and lapsing behavior can be explained by considering the issue of limited affordability

On Avoidance and Neglect as Barriers to Informed Decision-Making : Three Essays in Behavioral Economics

The thesis comprises three essays on the reasons for and consequences of poorly-informed decision-making. Chapter 1 investigates active avoidance of information as a source of uninformed decision-making. Next to providing input for subsequent decisions information may trigger undesirable emotional responses. An optimal decision on information acquisition then weighs benefits from better decision-making against the costs of an inferior emotional well-being. The model is applied to the context of medical testing. The availability of effective cure and the timing of testing are predicted to be significant determinants of test uptake. This is in line with empirical evidence on barriers to testing. Chapter 2 proposes a model of limited attention. Given limited cognitive capabilities a decision-maker may simply be unable to make a fully-informed decision. Thus, the resulting decision neglects some of the available information. The model is applied to investigate the question of optimal product design when customers have limited attention. It is shown that a firm can increase its profit by introducing goods that have the sole function of manipulating consumer attention. In addition, the chapter discusses how a firm can profitably employ such manipulating goods. Chapter 3 presents an analysis of how customers with limited attention value and choose among health plans. It shows how the model can accommodate four observations regarding plan choice.First, people tend to overweight the premium and thus underappreciate the value of health insurance. Second, insurance companies have a strong incentive to reduce quality and to hide the shortcomings in the fine print while attracting customers with insufficiently lower premiums. Third, customers may choose dominated alternatives. Finally, the willingness-to-pay for insurance is subadditive creating an incentive for providers to unbundle comprehensive plans. It is discussed how these effects may result in a fundamental dilemma for policy makers

Incentivizing efficient utilization without reducing access: The case against costsharing in

Cost-sharing is regarded as an important tool to reduce moral hazard in health insurance. Contrary to standard prediction, however, such requirements are found to decrease utilization both of efficient and of inefficient care. I employ a simple model that incorporates two possible explanations - consumer mistakes and limited access - to assess the welfare implications of different insurance designs. I find cost-sharing never to be an optimal solution as it produces two novel inefficiencies by limiting access. An alternative design, relying on bonuses, has no such side effects and achieves the same incentivization

Cognitive performance in open-plan office acoustic simulations: Effects of room acoustics and semantics but not spatial separation of sound sources

The irrelevant sound effect (ISE) characterizes short-term memory performance impairment during irrelevant sounds relative to quiet. Irrelevant sound presentation in most laboratory-based ISE studies has been rather limited to represent complex scenarios including open-plan offices (OPOs) and not many studies have considered serial recall of heard information. This paper investigates ISE using an auditory-verbal serial recall task, wherein performance was evaluated for relevant factors in simulating OPO acoustics: the irrelevant sounds including the semanticity of speech, reproduction methods over headphones, and room acoustics. Results (Experiments 1 and 2) show that ISE was exhibited in most conditions with anechoic (irrelevant) nonspeech sounds with/without speech, but the effect was substantially higher with meaningful speech compared to foreign speech, suggesting a semantic effect. Performance differences in conditions with diotic and binaural reproductions were not statistically robust, suggesting limited role of spatial separation of sources. In Experiment 3, statistically robust ISE were exhibited for binaural room acoustic conditions with mid-frequency reverberation times, T30 (s) = 0.4, 0.8, 1.1, suggesting cognitive impairment regardless of sound absorption representative of OPOs. Performance differences in T30 = 0.4 s relative to T30 = 0.8 and 1.1 s conditions were statistically robust. This emphasizes the benefits for cognitive performance with increased sound absorption, reinforcing extant room acoustic design recommendations. Performance differences in T30 = 0.8 s vs. 1.1 s were not statistically robust. Collectively, these results suggest that certain findings from ISE studies with idiosyncratic acoustics may not translate well to complex OPO acoustic environments

Mental accounting, access motives, and overinsurance

People exercising mental accounting have an additional motive for buying insurance. They perceive a risk of having insufficient funds available to self-insure. In this way insurance protects the consumption value of the insured asset beyond the expenditure to acquire/replace it. This complements previous approaches based on probability weighting and loss aversion to explain the high profitability of warranties and an aversion toward deductibles. It helps to account for why the value of a warranty is found to be positively related to the value of the product and why there is seemingly contradictory empirical evidence on how household income affects demand for warranties. The adapted model rationalizes a strong aversion to deductibles, and explains the observed sensitivity of this aversion to the insurance context. Finally, it predicts a strong impact of how an insurer pays out benefits on the value and cost of insurance. This can explain both the evidence on strong deductible aversion for flood insurance and the lack of such evidence for long-term care insurance