Making your health insurance less generous can actually make you spend more money.
April 17, 2026
Original Paper
The Generosity Paradox: When Less Generous Insurance Raises Spending
SSRN · 6496541
The Takeaway
Conventional wisdom says that if you make patients pay more, they’ll use less healthcare. But this paper finds the opposite: when insurance becomes 'stingier,' patients actually accelerate their spending so they can hit their out-of-pocket maximums as fast as possible. Once that cap is hit, the healthcare becomes 'free' for the rest of the year, leading to a surge in total spending. It’s a rational response to a system designed to discourage use. For policy makers and employers, it means that trying to save money by cutting benefits might actually blow a hole in the budget.
From the abstract
This paper shows that standard models of moral hazard predict a generosity paradox : less generous insurance can increase rather than decrease medical spending. Higher cost sharing makes it easier to reach the out-of-pocket maximum, where the marginal price is zero. Forward-looking consumers near that threshold therefore optimally increase their spending to reach the maximum. Using existing empirical estimates of the health need distribution and moral hazard responsiveness, I find that in many r