Deductibles in health insurance: can the actuarially fair premium reduction exceed the deductible?

The actuarially fair premium reduction in case of a deductible relative to full insurance is affected by: (1) out-of-pocket payments, (2) moral hazard , (3) administrative costs, and, in case of a voluntary deductible, (4) adv erse selection. Both the partial effects and the total effect of these fact ors are analyzed. Moral hazard and adverse selection appear to have a subst antial effect on the expected health care costs above a deductible but a sm all effect on the expected out-of-pocket expenditure. A premium model indic ates that for a broad range of deductible amounts the actuarially fair prem ium reduction exceeds the deductible. (C) 2000 Elsevier Science Ireland Ltd . All rights reserved.