III. PRICE ELASTICITY OF DEMAND FOR HEALTH INSURANCE
This chapter presents a range of estimates of the price elasticity of demand for health
employers, many studies have estimated the demand for employer-based coverage. We begin by
reviewing studies that estimate employers’ demand for coverage—in particular, the factors that
affect whether small employers offer coverage to their employees. We then consider studies that
estimate the effect of the amount of premium paid by employees on their decisions to take up an
offer of coverage and their propensity to switch health care plans when premiums change.
Finally, we consider estimates of price elasticity for individual (non-group) coverage and public
estimates, differences in estimates by population characteristics, and methodological issues and
concerns. A summary is provided at the end of the chapter.
A. EMPLOYER OFFER
The offer of employer coverage varies widely by firm size and, to a lesser extent, the wage
level of the workforce. Many policy proposals target employers who don’t currently offer health
insurance using the price reductions in order to expand workers’ access to group coverage.
Range of Estimates
Several studies have attempted to estimate employers’ demand for health insurance
(expressed as employers’ decisions to offer coverage to their employees). Some focus on the
potential effects of reduced price (typically due to a greater tax subsidy) across all employers;
others focus specifically on small employers.
Estimates of price elasticity of employer offer vary substantially, ranging from –0.14 to
5.8, although many estimates center around –0.6 (Table III.A). The wide range of estimates