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III. PRICE ELASTICITY OF DEMAND FOR HEALTH INSURANCE

This chapter presents a range of estimates of the price elasticity of demand for health

insurance.

Because

most

Americans

under

age

65

obtain

health

insurance

through

their

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

coverage

(including

Medicare).

Each

section

offers

information

on

the

range

of

elasticity

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.

1.

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

9

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