insurance, either because demand is a function of state income or because policymakers respond
to insurance tastes in setting state tax rates (Gruber and Washington 2005).
However, estimates based on exogenous price changes may have limitations that outweigh
the advantages of avoiding endogeneity. For example, workers may respond differently to a
hypothetical choice compared to an actual choice. Alternatively, results from experiments
conducted on a small scale may not be representative of results that would be obtained in the
C. EMPLOYEE CHOICE OF PLAN
Many mid-sized or large employers offer more than one plan, allowing the opportunity to
measure the propensity of workers to switch among health plans in response to a change in price.
As a result, there is a relatively large literature estimating the price elasticity of demand with
respect to alternative plan choices offered by employers.6 This literature is particularly important
for understanding the potential of managed competition, when employers or government
programs may foster competition among plans to constrain the cost of coverage. Managed
competition has taken on a new dimension with the introduction of consumer-directed health
plans (CDHP) as a plan option. While research on the demand for CDHPs generally has focused
on the experience of a few large groups, a small number of studies provide some early insights
about how consumers in general may respond to the offer of a CDHP. These studies are
reviewed at the end of next section.
Range of Estimates
A large number of studies have estimated the effect of employee premium contributions
(price) and other factors on employees’ enrollment decisions when given a choice of plans.
While individuals in the non-group market also face a choice of plans, this elasticity has not been studied.