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Measuring annual price elasticities in Dutch health insurance; a new method

  • Rudy Douven

    ()

  • Marco Ligthart

    ()

  • H. Lieverdink
  • I. Vermeulen
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    This paper proposes a new method for estimating annual price elasticities from market share data of health insurers. In contrast to traditional methods the elasticity is derived from bilateral price elasticities which relate the net share of switchers between two health insurers not only to their premium difference but also to the market share and premium of the higher priced health insurer. Our new method explains the annual variation in the Dutch market share data better than the traditional methods. We find in the Dutch social health insurance for the period 1996-2005 rather low negative annual price elasticities ranging between 1 and 0. In that period stickiness of insurer choices was high and less than 5% of the population switched annually from health insurer. This result, however, was in sharp contrast with an exceptional high price elasticity of 7 for the year 2006, where after a major health care reform about 18% of the population switched mostly to lower priced health insurers. Besides large media coverage, one important difference with previous years was that many consumers holding an individual contract could switch to a lower priced group contract.

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    File URL: http://www.cpb.nl/sites/default/files/publicaties/download/measuring-annual-price-elasticities-dutch-health-insurance-new-method.pdf
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    Paper provided by CPB Netherlands Bureau for Economic Policy Analysis in its series CPB Discussion Paper with number 90.

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    Date of creation: Nov 2007
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    Handle: RePEc:cpb:discus:90
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    1. Thomas C. Buchmueller, 2005. "Price and the Health Plan Choices of Retirees," NBER Working Papers 11395, National Bureau of Economic Research, Inc.
    2. Samuelson, William & Zeckhauser, Richard, 1988. " Status Quo Bias in Decision Making," Journal of Risk and Uncertainty, Springer, vol. 1(1), pages 7-59, March.
    3. Marcus Tamm & Harald Tauchmann & Jürgen Wasem & Stefan Gre�, 2007. "Elasticities of market shares and social health insurance choice in germany: a dynamic panel data approach," Health Economics, John Wiley & Sons, Ltd., vol. 16(3), pages 243-256.
    4. Strombom, Bruce A. & Buchmueller, Thomas C. & Feldstein, Paul J., 2002. "Switching costs, price sensitivity and health plan choice," Journal of Health Economics, Elsevier, vol. 21(1), pages 89-116, January.
    5. Rudy Douven & E. Schut, 2006. "Health plan pricing behaviour and managed competition," CPB Discussion Paper 61, CPB Netherlands Bureau for Economic Policy Analysis.
    6. David M. Cutler & Sarah Reber, 1996. "Paying for Health Insurance: The Tradeoff between Competition and Adverse Selection," NBER Working Papers 5796, National Bureau of Economic Research, Inc.
    7. Machiel van Dijk & Marc Pomp & Rudy Douven, 2006. "Consumer price sensitivity in health insurance," CPB Discussion Paper 56, CPB Netherlands Bureau for Economic Policy Analysis.
    8. Rudy Douven, 2004. "Risk adjustment in the Netherlands; an analysis of insurers' health care expenditures," CPB Discussion Paper 39, CPB Netherlands Bureau for Economic Policy Analysis.
    9. Abraham, Jean M. & Feldman, Roger & Carlin, Caroline & Christianson, Jon, 2006. "The effect of quality information on consumer health plan switching: Evidence from the Buyers Health Care Action Group," Journal of Health Economics, Elsevier, vol. 25(4), pages 762-781, July.
    10. Kenneth Train, 2003. "Discrete Choice Methods with Simulation," Online economics textbooks, SUNY-Oswego, Department of Economics, number emetr2, September.
    11. 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.
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