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Employer Contribution and Premium Growth in Health Insurance

  • Yiyan Liu
  • Ginger Zhe Jin
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    We study whether employer premium contribution schemes could impact the pricing behavior of health plans and contribute to rising premiums. Using 1991-2011 data before and after a 1999 premium subsidy policy change in the Federal Employees Health Benefits Program (FEHBP), we find that the employer premium contribution scheme has a differential impact on health plan pricing based on two market incentives: 1) consumers are less price sensitive when they only need to pay part of the premium increase, and 2) each health plan has an incentive to increase the employer's premium contribution to that plan. Both incentives are found to contribute to premium growth. Counterfactual simulation shows that average premium would have been 10% less than observed and the federal government would have saved 15% per year on its premium contribution had the subsidy policy change not occurred in the FEHBP.

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    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 19760.

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    Date of creation: Dec 2013
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    Handle: RePEc:nbr:nberwo:19760
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    1. Liran Einav & Amy Finkelstein, 2011. "Selection in Insurance Markets: Theory and Emprirics in Pictures," Discussion Papers 10-016, Stanford Institute for Economic Policy Research.
    2. Amitabh Chandra & Jonathan S. Skinner, 2011. "Technology Growth and Expenditure Growth in Health Care," NBER Working Papers 16953, National Bureau of Economic Research, Inc.
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    4. Gruber, J. & Poterba, J., 1994. "Tax Incentives and the Decision to Purchase Health Insurance: Evidence from the Self-Employed," Working papers 94-10, Massachusetts Institute of Technology (MIT), Department of Economics.
    5. 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.
    6. Wholey, Douglas & Feldman, Roger & Christianson, Jon B., 1995. "The effect of market structure on HMO premiums," Journal of Health Economics, Elsevier, vol. 14(1), pages 81-105, May.
    7. David Dranove & Anne Gron & Michael J. Mazzeo, 2003. "Differentiation and Competition in HMO Markets," Journal of Industrial Economics, Wiley Blackwell, vol. 51(4), pages 433-454, December.
    8. Jeffrey M. Wooldridge, 2001. "Econometric Analysis of Cross Section and Panel Data," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262232197, June.
    9. Heim, Bradley T. & Lurie, Ithai Z., 2009. "Do increased premium subsidies affect how much health insurance is purchased? Evidence from the self-employed," Journal of Health Economics, Elsevier, vol. 28(6), pages 1197-1210, December.
    10. Roger Feldman & Kenneth E. Thorpe & Bradley Gray, 2002. "Policy Watch: The Federal Employees Health Benefits Plan," Journal of Economic Perspectives, American Economic Association, vol. 16(2), pages 207-217, Spring.
    11. Joseph P. Newhouse, 1992. "Medical Care Costs: How Much Welfare Loss?," Journal of Economic Perspectives, American Economic Association, vol. 6(3), pages 3-21, Summer.
    12. Amy Finkelstein & Kathleen McGarry, 2006. "Multiple Dimensions of Private Information: Evidence from the Long-Term Care Insurance Market," American Economic Review, American Economic Association, vol. 96(4), pages 938-958, September.
    13. 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.
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