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Typically these studies rely on data from one employer—such as the federal government—or

several employers in the same geographic market. These studies consistently find that the

average consumer is moderately sensitive to differences in price among comparable plans, but

their demand is still inelastic. The studies that estimate a price elasticity typically express it as

the percentage change in the probability of choosing a particular plan (or the percentage of

employees enrolled in a particular plan) associated with a percentage difference in the price of

the plan (usually measured as employees’ out-of-pocket premiums).

The magnitude of the estimates can be quite different, but they usually are in a range

between zero and –0.75 (Table III.C). This range may be partly explained by the different

alternative choice sets that employees faced in each study, making direct comparison of the

estimates difficult.

Barringer and Mitchell (1994) estimated the effect of changes in premiums and deductibles

on employees’ preferences among four types of health plan plans. Based on observations from a

single company with four plants across the United States, they estimated that a percentage

change in one plan’s market share with respect to a 1 percent change in its price in the range of

  • 0.1 to –0.2. In addition, they found that the elasticity of demand with respect to a difference in

the plan deductible was much smaller than the elasticity of demand with respect to a difference

in premium.

Goldman et al. (2004) also used data from a single large U.S. company with employees in

47 states in 1989 and 1991. They estimated the probability that an employee would drop

coverage or switch plans in response to increases in employee premiums in one of the plans.

They did not estimate standard price elasticities, but found that a 10 percent increase in premium

induced 7 percent of single employees to drop coverage and another 13 percent to switch to

another plan.


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