elasticity must correct for this selection bias. Second, geographic areas with high prices for
insurance may also be areas with a high demand of insurance (Gruber and Lettau 2004); that is,
demand may influence market prices. To address this problem of endogeneity, researchers have
used additional instrumental variables to estimate the elasticity of employer offer.
B. EMPLOYEE TAKE UP
Having received an offer of health insurance, employees must decide whether to take up the
offer. Large majority of employees do take up the offer. However, the number of workers who
decline an offer of employer-based coverage has grown over the past decade (Cutler 2002b),
attributed in large part to significant increases in the employee premiums for coverage.
Range of Estimates
Unlike the literature on employer offer, recent studies that have estimated price elasticity of
employee take up generally agree that the take-up elasticity is small: estimates range from -0.002
to –0.7, with most less than –0.1 (Table III.B).
Chernew and colleagues (1997) were among the first to examine how premium contributions
affected take-up rates among single employees using a sample of small firms in seven cities; they
estimated a premium contribution elasticity of –0.066. Blumberg et al. (2001) used nationally
representative MEPS data in 1996 and estimated a similar price elasticity (-0.04) among workers
who were candidates for family coverage, but an even smaller elasticity among single workers.
Cutler (2002) estimated a similar price elasticity of take up (–0.09) with respect to employees’
variation. Due to the problem of endogeneity, these data are likely to produce either downward-
or upward-biased elasticity estimates (Gruber and Washington 2005).