Final answer:
Insurance companies promote larger deductibles to minimize moral hazard and encourage responsible use of insurance. Higher deductibles deter small claims and maintain a balanced risk pool, keeping insurance affordable. Consumption of services is more cost-efficient with larger deductibles without negatively affecting health status.
Step-by-step explanation:
Insurance companies encourage drivers to buy a policy with a larger deductible because it helps to decrease the risk of moral hazard. A larger deductible means that the insured person has to pay more out of their own pocket before the insurance coverage starts paying. This promotes more responsible behavior since the insured party bears a greater share of the financial risk in case of a claim. Moreover, it helps to ensure that policyholders think twice before filing a claim for small issues, which can reduce the number of claims the insurance company has to handle and therefore save them money.
Additionally, when an insurance company has a large number of clients, they can negotiate better rates with service providers, which benefits consumers. However, if insurance companies raise premiums to cover high-risk clients, those with lower risks might opt out of insurance, thereby reducing the insurance pool and potentially increasing costs for remaining policyholders. Thus, encouraging a higher deductible helps maintain a balanced risk pool and sustains affordability for a broad range of consumers.
Another aspect is the finding that people with moderate deductibles and copayments for their health insurance consume significantly less medical care without a reduction in health status when compared with those who have full coverage and little to no out-of-pocket expenses. This suggests that higher deductibles can lead to more cost-efficient use of services without adversely affecting the consumer's health.