Working Paper: NBER ID: w27868
Authors: Kate Ho; Robin S. Lee
Abstract: We provide a framework for large employers designing a menu of health plan offerings that differ on both financial and non-financial dimensions. Using detailed administrative data from Harvard University, we estimate a model of plan choice and utilization, and evaluate the benefits of cost sharing and plan variety. For this population of employed consumers, and a single plan with a generous out-of-pocket maximum and zero deductible, we find that modest cost sharing of approximately 30% maximizes average employee surplus. Further gains from offering choice are limited if based solely on financial characteristics, but can be meaningful if paired with differentiation along other dimensions where consumer preferences are correlated with efficient coverage levels.
Keywords: Health insurance; Cost sharing; Plan choice
JEL Codes: I11; I13; L2
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| full insurance (G52) | health spending (H51) |
| optimal design of plan menus (L21) | enrollee selection (I13) |
| non-financial differentiation (G29) | gains from multiple plans (J32) |
| cost sharing (D16) | employee surplus (M52) |
| cost sharing (D16) | medical care spending (I11) |
| higher expected health care needs (I11) | preference for higher coverage plans (G52) |
| financial characteristics + non-financial dimensions (G32) | meaningful gains (L25) |