Managing Behavioral Hazard in Practice: Value-Based Health Insurance

Mei-Lynn Hua, PhD Candidate, The Wharton School

Abstract: Value-based health insurance plans have been introduced as an innovative policy to improve health as well as manage health care expenditures – generally through promoting high-value care and reducing low-value care. Standard theory would suggest that the more elastic the demand is for a particular medical service, cost-sharing should be set higher to curb overconsumption due to moral hazard. However, there also exists behavioral hazard as consumers underuse care with health benefits that greatly exceed costs, so the optimal level of cost-sharing is difficult to establish. I study the association between value-based cost-sharing on health care utilization, spending, and health outcomes.