Consumer Price Sensitivity and Health Plan Choice in a Regulated Competition Setting

We estimate premium elasticities in a regulated competition market based on a quasi-exogenous premium increase for young adults in Switzerland. 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 changing the plan type (towards more managed care plans), 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 five times larger for the treated (-1.03) than for the controls (-0.19). Our results are not driven by health status as measured by health care expenditures and chronic conditions. Rather, our findings suggest that only salient price increases induce behavior changes in health plan choice. We argue that this finding is of high relevance for health care policies that aim at fostering health plan competition.