Working Paper: NBER ID: w15687
Authors: Leemore Dafny; Katherine Ho; Mauricio Varela
Abstract: Most non-elderly Americans purchase insurance through their employers, which sponsor a limited number of plans. We estimate how much employees would be willing to pay for the right to apply their employer subsidy to the plan of their choosing. We make use of a proprietary dataset containing information on plan offerings and enrollment for 800+ large employers between 1998 and 2006; the dataset represents over 10 million Americans annually. We estimate a model of employee preferences using the set of plans they are offered. Using the estimated parameters from this model, we predict employees' choices in a hypothetical world in which additional plans in a market are available to them on the same terms, i.e. tax-free and subsidized by their employers. Holding employer outlays constant, we estimate that the median welfare gain from expanding choice amounts to roughly 20 percent of premiums. For the vast majority of employee groups and alternative model specifications, the gains from choice are likely to outweigh potential premium increases associated with a transition from large group to individual pricing.
Keywords: health insurance; employee choice; welfare gains; employer-sponsored insurance
JEL Codes: I11; L11
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| expanding employee choice (J29) | substantial welfare gains (D69) |
| broader market options (G13) | substantial welfare gains (D69) |
| employee choice (M52) | consumer surplus (D46) |
| willingness to forfeit employer subsidy (H20) | preference for plan choice (G52) |
| increased choice (D87) | upward pressure on premiums (G52) |