respect to the size of the HRA (0.09). The concluded that consumers may be more sensitive to
concluded that tax credits targeted to Health Savings Accounts (HSAs) may be effective in
increasing the take-up of insurance among the uninsured in general, but much less effective
among those with lower incomes.
Large differences in the price elasticity of plan switching have been associated with
younger, recently hired employees who are in good health—and presumed to face the lowest
non-price switching costs, such as quality uncertainty and provider change—are two to four
times larger than those estimated for older, incumbent, and less healthy workers (Royalty and
Solomon 1999; Strombom et al. 2002). Single employees are more likely to respond to premium
increases by dropping coverage altogether, whereas families tend to switch to another plan
(Goldman et al. 2004). Everything else being equal, the tax exemption of expenditures for
employer-based health insurance may explain some of these differences, especially when family
income is not observable.7
Regarding the choice of CDHP in a multiplan, multiproduct setting, Parente et al. (2004)
found that the CDHP attracted higher-income employees and those who found unrestricted
choice among providers more appealing—not necessarily young and healthy employees or
families. Among employees or families with chronic conditions, the price elasticity of demand
for the CDHP was greater than among those without a chronic condition.
7 Dowd et al. (2001) observed that the tax exemption of premiums substantially reduces price responsiveness in choice of health plans, especially at higher incomes (and higher marginal tax rates).