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Let Them Have Choice: Gains from Shifting Away from Employer-Sponsored Health Insurance and toward an Individual Exchange

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  • Leemore Dafny
  • Kate Ho
  • Mauricio Varela
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Abstract

Most nonelderly Americans purchase health insurance through their employers, which sponsor a limited number of plans. Using a panel dataset representing over ten million insured lives, we estimate employees' preferences for different health plans and use the estimates to predict their choices if more plans were made available to them on the same terms, i.e., with equivalent subsidies and at large-group prices. Using conservative assumptions, we estimate a median welfare gain of 13 percent of premiums. A proper accounting of the costs and benefits of a transition from employer-sponsored to individually-purchased insurance should include this nontrivial gain. (JEL G22, I13, J32)

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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Journal: Economic Policy.

Volume (Year): 5 (2013)
Issue (Month): 1 (February)
Pages: 32-58

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Handle: RePEc:aea:aejpol:v:5:y:2013:i:1:p:32-58

Note: DOI: 10.1257/pol.5.1.32
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References

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  1. Scanlon, Dennis P. & Chernew, Michael & McLaughlin, Catherine & Solon, Gary, 2002. "The impact of health plan report cards on managed care enrollment," Journal of Health Economics, Elsevier, vol. 21(1), pages 19-41, January.
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  3. Aviv Nevo, 2001. "New Products, Quality Changes and Welfare Measures Computed From Estimated Demand Systems," NBER Working Papers 8425, National Bureau of Economic Research, Inc.
  4. Swamy, P A V B, 1970. "Efficient Inference in a Random Coefficient Regression Model," Econometrica, Econometric Society, vol. 38(2), pages 311-23, March.
  5. Anne Beeson Royalty & Neil Solomon, 1999. "Health Plan Choice: Price Elasticities in a Managed Competition Setting," Journal of Human Resources, University of Wisconsin Press, vol. 34(1), pages 1-41.
  6. Chernew, Michael & Gowrisankaran, Gautam & McLaughlin, Catherine & Gibson, Teresa, 2004. "Quality and employers' choice of health plans," Journal of Health Economics, Elsevier, vol. 23(3), pages 471-492, May.
  7. Buchmueller, Thomas C. & Feldstein, Paul J., 1997. "The effect of price on switching among health plans," Journal of Health Economics, Elsevier, vol. 16(2), pages 231-247, April.
  8. Wedig, Gerard J. & Tai-Seale, Ming, 2002. "The effect of report cards on consumer choice in the health insurance market," Journal of Health Economics, Elsevier, vol. 21(6), pages 1031-1048, November.
  9. Michael Chernew & Gautam Gowrisankaran & Dennis P. Scanlon, 2001. "Learning and the Value of Information: Evidence From Health Plan Report Cards," NBER Working Papers 8589, National Bureau of Economic Research, Inc.
  10. Jin, Ginger Zhe & Sorensen, Alan T., 2006. "Information and consumer choice: The value of publicized health plan ratings," Journal of Health Economics, Elsevier, vol. 25(2), pages 248-275, March.
  11. Jason T. Abaluck & Jonathan Gruber, 2009. "Choice Inconsistencies Among the Elderly: Evidence from Plan Choice in the Medicare Part D Program," NBER Working Papers 14759, National Bureau of Economic Research, Inc.
  12. Gruber, Jonathan & Washington, Ebonya, 2005. "Subsidies to employee health insurance premiums and the health insurance market," Journal of Health Economics, Elsevier, vol. 24(2), pages 253-276, March.
  13. Chernew, Michael & Gowrisankaran, Gautam & Scanlon, Dennis P., 2008. "Learning and the value of information: Evidence from health plan report cards," Journal of Econometrics, Elsevier, vol. 144(1), pages 156-174, May.
  14. Kate Bundorf, M., 2002. "Employee demand for health insurance and employer health plan choices," Journal of Health Economics, Elsevier, vol. 21(1), pages 65-88, January.
  15. Steven T. Berry, 1994. "Estimating Discrete-Choice Models of Product Differentiation," RAND Journal of Economics, The RAND Corporation, vol. 25(2), pages 242-262, Summer.
  16. Beaulieu, Nancy Dean, 2002. "Quality information and consumer health plan choices," Journal of Health Economics, Elsevier, vol. 21(1), pages 43-63, January.
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Cited by:
  1. Kate Ho & Robin S. Lee, 2013. "Insurer Competition and Negotiated Hospital Prices," NBER Working Papers 19401, National Bureau of Economic Research, Inc.
  2. Jacob Glazer & Thomas McGuire & Julie Shi, 2014. "Risk Adjustment of Health Plan Payments to Correct Inefficient Plan Choice from Adverse Selection," NBER Working Papers 19998, National Bureau of Economic Research, Inc.
  3. Jacob Glazer & Thomas G. McGuire & Julie Shi, 2013. "Risk Adjustment of Health Plan Payments to Correct Inefficient Plan Choice from Adverse Selection," NBER Chapters, in: Measuring and Modeling Health Care Costs National Bureau of Economic Research, Inc.
  4. Ilyana Kuziemko & Katherine Meckel & Maya Rossin-Slater, 2013. "Do Insurers Risk-Select Against Each Other? Evidence from Medicaid and Implications for Health Reform," NBER Working Papers 19198, National Bureau of Economic Research, Inc.
  5. Keith M. Marzilli Ericson & Amanda Starc, 2012. "Pricing Regulation and Imperfect Competition on the Massachusetts Health Insurance Exchange," NBER Working Papers 18089, National Bureau of Economic Research, Inc.
  6. Wuppermann, Amelie C. & Bauhoff, Sebastian & Grabka, Markus M., 2014. "The Price Sensitivity of Health Plan Choice: Evidence from Retirees in the German Social Health Insurance," Discussion Papers in Economics 21080, University of Munich, Department of Economics.
  7. Keith M Marzilli Ericson & Amanda Starc, 2013. "How Product Standardization Affects Choice: Evidence from the Massachusetts Health Insurance Exchange," NBER Working Papers 19527, National Bureau of Economic Research, Inc.

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