Dominated Options in Health-Insurance Plans / Chenyuan Liu, Justin R. Sydnor.

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Liu, Chenyuan

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Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w24392.Publication details: Cambridge, Mass. National Bureau of Economic Research 2018.Description: 1 online resource: illustrations (black and white)Subject(s):

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Abstract: Recent studies have found that many people select into health plans with higher coverage (e.g., lower deductibles) even when those plans are financially dominated by other options. We explore whether having dominated options is common by analyzing data on plan designs from the Kaiser Family Foundation Employer Health Benefits Survey for firms that offered employees both a high-deductible (HD) health plan and a lower-deductible (LD) option. In 65% of firms the high-deductible option would result in lower maximum possible health spending for the employee for the year. We estimate that the HD plan financially dominates the LD plan at roughly half of firms across a wide range of possible health spending needs employees might anticipate. The expected savings from selecting the HD plan are typically over $500 per year, often with no increase in financial risk. We present evidence that these patterns may arise naturally from employers passing through large average-cost differences between HD and LD plans to their employees. We discuss the implications of those dynamics for the nature of transfers between employees and the efficiency of health spending.

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Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w24392 (Browse shelf(Opens below))	Not For Loan

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March 2018.

Recent studies have found that many people select into health plans with higher coverage (e.g., lower deductibles) even when those plans are financially dominated by other options. We explore whether having dominated options is common by analyzing data on plan designs from the Kaiser Family Foundation Employer Health Benefits Survey for firms that offered employees both a high-deductible (HD) health plan and a lower-deductible (LD) option. In 65% of firms the high-deductible option would result in lower maximum possible health spending for the employee for the year. We estimate that the HD plan financially dominates the LD plan at roughly half of firms across a wide range of possible health spending needs employees might anticipate. The expected savings from selecting the HD plan are typically over $500 per year, often with no increase in financial risk. We present evidence that these patterns may arise naturally from employers passing through large average-cost differences between HD and LD plans to their employees. We discuss the implications of those dynamics for the nature of transfers between employees and the efficiency of health spending.