How much do premiums affect health plan choice?

In econ-speak, we are looking to measure the elasticity of plan switching with respect to premium increases.  This elasticity is in essence how much would a 10% change in premium affect the likelihood of plan choice change.  If the answer is 10%, the elasticity is -1.  If the answer is a 5% increase in plan switching, the elasticity would be -0.5; on the other hand, if the increase in plan switching rates was 20%, the elasticity would be -2.

An interesting paper by Bischof and Schmid (2018) provides this estimate in Switzerland using a novel estimation technique.

We exploit that individuals born before the turn of the year (“treatment group”) face a larger increase in premiums than individuals born after the turn of the year (“control group”). We find that the treatment group is 1.5 times more likely to switch their health plan than the control group. Overall, individuals respond to premium increases by choosing more frequently health plans with managed care features, increasing the deductible, and by switching the insurer. Regarding health plan choice, we find an average elasticity of −0.56 with regard to the relative premium difference of any plan to the status quo contract. The elasticity is up to 5 times larger for the treated (−1.03) than for the controls (−0.19).

You can an ungated earlier version of the paper here.

Source:

• Bischof, Tamara, and Christian PR Schmid. Consumer Price Sensitivity and Health Plan Choice in a Regulated Competition Setting. HEDG, c/o Department of Economics, University of York, 2017.

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