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Employer contribution and premium growth in health insurance

Author

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  • Liu, Yiyan
  • Jin, Ginger Zhe
Abstract
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. We discuss the potential of similar incentives in other government-subsidized insurance systems such as the Medicare Part D and the Health Insurance Marketplace under the Affordable Care Act.

Suggested Citation

  • Liu, Yiyan & Jin, Ginger Zhe, 2015. "Employer contribution and premium growth in health insurance," Journal of Health Economics, Elsevier, vol. 39(C), pages 228-247.
    • Handle: RePEc:eee:jhecon:v:39:y:2015:i:c:p:228-247
    DOI: 10.1016/j.jhealeco.2014.08.006
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    Cited by:

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    2. Sonia Jaffe & Mark Shepard, 2020. "Price-Linked Subsidies and Imperfect Competition in Health Insurance," American Economic Journal: Economic Policy, American Economic Association, vol. 12(3), pages 279-311, August.
    3. Sonia Jaffe & Mark Shepard, 2017. "Price-Linked Subsidies and Health Insurance Markups," Working Papers 2017-084, Human Capital and Economic Opportunity Working Group.
    4. Trinh, Cong Tam & Chao, Chi-Chur & Ho, Nhut Quang, 2023. "Private health insurance consumption and public health-care provision in OECD countries: Impact of culture, finance, and the pandemic," The North American Journal of Economics and Finance, Elsevier, vol. 64(C).
    5. Kim, Seonghoon & Koh, Kanghyock, 2022. "The effects of the affordable care act dependent coverage mandate on parents’ labor market outcomes," Labour Economics, Elsevier, vol. 75(C).
    6. Koh, Kanghyock, 2018. "The Great Recession and Workers’ Health Benefits," Journal of Health Economics, Elsevier, vol. 58(C), pages 18-28.

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    More about this item

    Keywords

    Health insurance; Pricing; Employer contribution;
    All these keywords.

    JEL classification:

    • I1 - Health, Education, and Welfare - - Health
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue

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