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Employer Contribution and Premium Growth in Health Insurance

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  • Yiyan Liu
  • Ginger Zhe Jin

Abstract

We study whether employer premium contribution schemes could impact the pricing behavior of health plans and contribute to rising premiums. Using 1991-2011 data before and after a 1999 premium subsidy policy change in the Federal Employees Health Benefits Program (FEHBP), we find that the employer premium contribution scheme has a differential impact on health plan pricing based on two market incentives: 1) consumers are less price sensitive when they only need to pay part of the premium increase, and 2) each health plan has an incentive to increase the employer's premium contribution to that plan. Both incentives are found to contribute to premium growth. Counterfactual simulation shows that average premium would have been 10% less than observed and the federal government would have saved 15% per year on its premium contribution had the subsidy policy change not occurred in the FEHBP.

Suggested Citation

  • Yiyan Liu & Ginger Zhe Jin, 2013. "Employer Contribution and Premium Growth in Health Insurance," NBER Working Papers 19760, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:19760
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • I1 - Health, Education, and Welfare - - Health
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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