Deductible or Copay Schedule¶

Self-selection cost-sharing policy — instantiates Adverse Selection Filtering

Builds cost-sharing into the offer so the heaviest-use hidden types find a flat pool less attractive and either stay out or reveal themselves by plan choice, holding the pool's expected cost in range.

A Deductible or Copay Schedule filters a pool without measuring anyone. By making each participant bear part of their own cost at the point of use — a deductible before coverage starts, a copay per visit, coinsurance on the balance — it changes the arithmetic of entry so that the heaviest-use hidden types no longer find a flat, richly-pooled offer the bargain it would otherwise be. Its defining feature among its siblings is that the entrant's own exposure to cost does the sorting: nobody is interrogated or rejected, but the shape of the cost-sharing means light users and heavy users face genuinely different value propositions, and the pool's expected cost per head stays inside what the premium assumes.

Example¶

A mid-size employer offers health benefits. If it fields a single, richly-covered plan with no cost-sharing, it disproportionately attracts and retains the highest-utilization employees — those with chronic conditions or planned procedures — while low-utilizers quietly resent overpaying, and the cost per covered life climbs. Instead it offers a schedule: a high-deductible plan paired with an employer HSA contribution alongside a low-deductible plan carrying a higher payroll cost. Employees who expect heavy use gravitate to the low-deductible plan; those who expect little tend to take the high-deductible one for the premium savings and the HSA. The schedule never asks anyone about their health — yet the cost-sharing geometry keeps either plan's pool from silently becoming a repository for the utilization it didn't price.

The danger the employer watches is that a deductible filters on ability to absorb cost, not just on risk, so a schedule set too aggressively deters the legitimately sick along with the merely expensive — which is why the fairness and cross-subsidy decisions sit with sibling mechanisms.

How it works¶

Put cost at the margin on the user. A deductible, copay, or coinsurance rate makes the participant feel part of each dollar of use, so the offer is worth most to those who expect to use least under pooled terms.
Shape the schedule to separate, not to punish. The spread between a high- and low-cost-sharing option is set so that different expected-utilization types find different options genuinely better, rather than crowding onto one.
Cap the downside. An out-of-pocket maximum bounds each participant's exposure so the schedule filters composition without becoming ruinous for a bad year.

Tuning parameters¶

Deductible level — how much the participant pays before coverage engages. Higher deters heavier use more but shifts real risk onto members.
Coinsurance / copay rate — the share borne per unit of use; the finer lever between "feels free" and "feels metered."
Out-of-pocket maximum — the ceiling on member exposure; lower is more protective but weakens the self-selection.
Actuarial-value spread — how far apart the plan options sit; too narrow and both types pick the same plan, collapsing the sort.
Offsetting subsidy — an HSA seed or premium credit that tunes who finds the high-cost-sharing option attractive.

When it helps, and when it misleads¶

Its strength is that it is cheap, self-executing, and requires no interrogation: the participant's own choice reshapes the pool, and it works in markets where you legally or practically cannot ask about the hidden type. It is also the natural partner to any pooled offer that would otherwise attract only its worst risks.

Its central failure mode is that cost-sharing is a blunt filter — it deters by ability to pay as much as by risk, so it can screen out the poor and the genuinely sick rather than only the "expensive" hidden types.^[1] The classic misuse is deploying an aggressive schedule under the banner of "consumer choice" to quietly shed high-cost members. The discipline that guards against this is to pair the schedule with an explicit cross-subsidy and fairness policy, and to monitor whether the schedule is filtering risk or merely filtering poverty.

How it implements the components¶

Deductible or Copay Schedule realizes the term-and-filter side of the archetype through self-selection:

term_adjustment_rule — the cost-sharing schedule is the adjusted term of the offer, tuned so destabilizing hidden types no longer enter under pooled assumptions that don't fit them.
entry_filter_or_screen — the schedule acts as a passive, self-executing filter: the participant's own plan choice, not an administered test, sorts the pool.

It filters passively; the active evidence-gathering screen belongs to Prequalification Process. It does not set risk-based prices (that's Risk-Adjusted Pricing), split entrants into distinct pools (Risk Tier Assignment), or own the fairness and cross-subsidy governance the schedule requires (Risk Tier Assignment, Risk-Adjusted Pricing).

Instantiates: Adverse Selection Filtering — it reshapes a pooled offer so choice, not exclusion, holds the pool's composition.
Sibling mechanisms: Risk-Adjusted Pricing · Waiting Period · Claims or Outcome Experience Rating · Minimum Eligibility Standard · Prequalification Process · Probationary Entry · Quality Certification Requirement · Risk Tier Assignment · Seller Rating or Quality Grading · Underwriting Review · Warranty or Guarantee Requirement

Notes¶

Unlike an active screen, a cost-sharing schedule never rejects anyone — which is also its limit. It reshapes the offer so that self-selection does the sorting, but it cannot stop a determined high-cost participant who values the coverage enough to accept the cost-sharing. That residual is exactly what an entry filter or experience rating is for.

References¶

[1] A well-designed cost-sharing menu induces a separating equilibrium — different hidden types rationally choose different options and thereby reveal themselves — the Rothschild–Stiglitz insight about self-selection under asymmetric information. The failure case is a pooling outcome where the spread is too small and every type takes the same option. ↩