title: Employer contribution and premium growth in health insurance.
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.
authors.affiliation: RTI International, 1440 Main Street, Suite 310, Waltham, MA 02451, USA. Electronic address: yliu@rti.org.
authors.forename: Yiyan
authors.initials: Y
authors.lastname: Liu
authors.affiliation: Department of Economics, University of Maryland, College Park, MD 20742, USA. Electronic address: jin@econ.umd.edu.
authors.forename: Ginger Zhe
authors.initials: GZ
authors.lastname: Jin
mesh_terms: D035082:Federal Government; D006264:Health Benefit Plans, Employee / Q000191:economics* / Q000706:statistics & numerical data; D017048:Health Care Costs / Q000706:statistics & numerical data*; D006801:Humans; D007348:Insurance, Health / Q000191:economics* / Q000706:statistics & numerical data; D018803:Models, Economic; D014481:United States
keywords: Employer contribution; Health insurance; Pricing