Switching Costs, Price Sensitivity and Health Plan Choice

Journal of Health Economics
Vol. 21, No. 1
January 2002
Strombom, B.A., Buchmueller, T.C., and P.J. Feldstein
pp. 89-116

We investigate the extent to which sensitivity to health plan premiums differs across individuals according to characteristics related to the cost of switching plans. Our results indicate substantial variation in price sensitivity related to expected health care costs: younger, healthier employees are between two and four times more sensitive to price than employees who are older and who have been recently hospitalized or diagnosed with cancer. We also find evidence of status quo bias: estimated premium elasticities are significantly higher for new hires than for incumbent employees. Simulations combining our results with actuarial data illustrate the cost implications of risk-related differences in price elasticity.

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