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In contrast, Royalty and Hagens (2003) used a unique dataset in which the variation in

workers’

out-of-pocket

premiums

was

exogenous

but

hypothetical.

Consistent

with

earlier

findings, they estimated a price elasticity of insurance take up essentially equal to zero, much

lower than the price elasticity of demand for other fringe benefits. Gruber and Washington

(2005) capitalized on a natural experiment in 1994, when postal employees were allowed to pay

the employee share of their health insurance premiums using pre-tax dollars. This study also

estimated a very low take-up elasticity, approximately –0.02.

None of these studies accounted for the availability of coverage from alternative sources,

such as from a spouse’s firm. However, some recent analyses have considered elasticity in the

context of choice. Polsky et al. (2005) analyzed the choice for employees with an insurance

offer from their own-employer, an alternative source of coverage, and no coverage. Using a

nationally representative household survey (the 1996 and 1999 Community Tracking Study

[CTS]), they found that paying a larger share of premiums significantly increased the odds of

that a worker would decline an employer offer of coverage and remain uninsured.5 Simulating

the effect of reducing the employee share of the premium to zero, they found a smaller price

effect compared to other studies, and attributed the difference to the fact that their model

considered available alternative sources of coverage.

2.

Subpopulation Differences

Honig and Dushi (2005) also considered employee take up in the context of choice, and

estimated the elasticity of the take up of coverage from a worker’s own employer with respect to

out-of-pocket premiums separately for wives and husbands. They estimated a price elasticity of

5 Polsky et al. (2005) estimated an odds ratio of 1.023 for married workers and 1.035 for single workers— meaning that when the employee share of premiums increased by 1 percentage point, the probability that the worker declined an employer offer of coverage and remained uninsured was 2.3 percent higher (P x 1.023).

17

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