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CHAPTER 2. HEALTH PLAN CHOICE 90
average, a $100 dollar increase in the annual enrollee contribution decreases market
share by 7 to 9 percent. While instrumenting for the contribution reduces the precision
of the estimate, it has relatively little effect on its magnitude. These estimates suggest
that demand is relatively inelastic, in line with other estimates in the literature. In
the Online Appendix, we discuss studies in settings similar to ours. Across these
studies, a $100 increase in the annual contribution reduces market share by 1.6 to 9.6
percent, placing our estimate in the middle to high end of the range.
The results in Table 2.4 also include the estimated value of plan characteristics
other than price, such as coinsurance rate and deductible. Enrollees appear to be
moderately sensitive to both. We estimate that a 10 percentage point increase in
the coinsurance rate is valued at approximately $276 dollars annually, which is about
10 percent of the annual cost per enrollee reported by the insurers. Our estimates
indicate that enrollees are not particularly sensitive to the deductible when choosing
among plans. 22
Because the estimates of risk and price elasticity are the key parameters for our
welfare calculations, we have examined the sensitivity of these estimates to a variety
of issues. In the Online Appendix we present estimates where we vary the sample of
households and use different instruments (discussed in Section 2.5.4) for the employee
contributions. We also discuss specifications with alternative sets of controls. The
bottom line is that the estimates are robust to variation across these dimensions.
Structure of Plan Costs
The difference in cost structures for the integrated and network insurer can be
seen in the raw data depicted in Figures 2.5 and 2.6. Figure 2.5 is a scatterplot of
enrollee risk scores against realized costs. Each point corresponds to an insurer-firm-
year. The x-axis is the average risk of the insurer’s enrollees; the y-axis is the reported
costs per enrollee. The lines represent the model’s prediction (shown in Table 2.5)
of expected costs for the network PPO and the integrated HMO. Figure 2.6 displays
corresponding information for bids. It shows the average risk of a firm’s employees
plotted against plan bids, with each observation at the plan-firm-year level.
22 The results are unchanged when out-of-pocket maximum are included as plan characteristics.