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Health Insurance Demand and the Generosity of Benefits: Fixed Effects Estimates of the Price Elasticity

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  • Jacobs Paul D.

    (Congressional Budget Office)

Abstract

This paper explores a central question in health economics: How sensitive is worker demand for health insurance? After controlling for variables omitted in other analyses, such as the generosity of plan coverage and aspects of worker demand that are constant within firms over time, I estimate a price elasticity (between -0.014 and -0.017) which is smaller than previous estimates. The analysis also finds that employees are more likely to take-up policies with greater insurance protection from hospital expenses, but not for increased coverage for prescription drug or provider office visit expenses. Taken together, increases in worker-paid premiums explain about 60 percent of the fall in take-up of employer policies over time, whereas increases in insurance cost-sharing explain about 10 percent of that change. Changes in employer contributions for health insurance had a limited effect on take-up compared with the amounts employees paid out-of-pocket for premiums. An implication of these findings is that policies which attempt to subsidize employee-paid portions of the premium would be an expensive and potentially ineffective strategy for achieving greater coverage, particularly if the quality of that coverage is not perceived as worthwhile.

Suggested Citation

  • Jacobs Paul D., 2009. "Health Insurance Demand and the Generosity of Benefits: Fixed Effects Estimates of the Price Elasticity," Forum for Health Economics & Policy, De Gruyter, vol. 12(2), pages 1-27, June.
  • Handle: RePEc:bpj:fhecpo:v:12:y:2009:i:2:n:3
    DOI: 10.2202/1558-9544.1133
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    Cited by:

    1. David Auerbach & Janet Holtzblatt & Paul Jacobs & Alexandra Minicozzi, 2010. "Will Health Insurance Mandates Increase Coverage? Synthesizing Perspectives from Health, Tax, and Behavioral Economics: Working Paper 2010-05," Working Papers 21600, Congressional Budget Office.
    2. Koh, Kanghyock, 2018. "The Great Recession and Workers’ Health Benefits," Journal of Health Economics, Elsevier, vol. 58(C), pages 18-28.

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