Consumers' Sensitivity to Health Plan Premiums: Evidence From a Natural Experiment in California
- 1 January 1996
- journal article
- Published by Health Affairs (Project Hope) in Health Affairs
- Vol. 15 (1) , 143-151
- https://doi.org/10.1377/hlthaff.15.1.143
Abstract
A recent policy change by the University of California (UC) provides a unique natural experiment for investigating how consumers respond to financial incentives when choosing health plans. In 1994 UC went from a premium contribution policy that subsidized more costly plans to a policy of contributing a constant dollar amount. As a result, employee premium contributions increased for roughly one-third of university employees. The response to this change in relative prices was strong. Whereas only 5 percent of employees facing constant premium contributions switched plans, roughly one-quarter of those facing premium contribution increases of less than $10 per month switched to lower-cost plans. Higher price increases led to even greater rates of plan switching.Keywords
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