Health Insurance Demand Responses from New Price Structures Offered by Consumer Directed Health Plans
- Presenter:
Chair: Willard Manning; Discussant: TBA Mon June 5, 2006 15:30-17:00 Room 121
Rationale: Consumer directed health plans (CDHPs) are attracting attention from consumers, employers, and policy-makers. CDHPs are high-deductible health insurance plans coupled with a tax-advantaged account that can be used to pay for eligible medical expenses. CDHP enrollment is currently estimated at approximately three to five million covered lives.
Objectives: The purpose of this paper is to examine the effect of ‘price’ on health plan choice. More specifically, we will determine whether the health care spending account in the new CDHP designs provides an incentive for consumers to choose these plans over conventional health insurance plans; and we will estimate the extent to which the ‘donut hole’ (i.e. the gap between the account and point where insurance coverage begins) is a disincentive for health plan choice. These two ‘prices’ are largely absent from the design of traditional health insurance plans, which feature relatively low deductibles and do not have health spending accounts. The research questions of this examination are:
How does the introduction of Consumer Directed Health Plans (CDHPs) into mainstream health insurance affect plan choice?
Specifically, what is the impact of the account, donut hole and deductible on the own-price elasticity of CDHPs?
Methodology: This paper builds upon the plan choice estimation analysis from an earlier CDHP investigation. In that analysis, a logistic regression conditional upon the number of plan choices offered to a given employee was used. Our primary source of data for this analysis is the employee health plan choices from four large employers participating in a Robert Wood Johnson Foundation (RWJF) funded study. The data from employers represented approximately 250,000 covered lives. Each of these employers offers a CDHP along with traditional managed care plans.
Results & Implications: Early results show a positive impact of the health care spending account from which medical expenses are debited and negative responses to the new CDHP deductible developed as the difference between a traditional high deductible health plan and the consumer’s spending account. With respect to their respective elasticities, the CDHP deductible, known as the ‘donut hole,’ has a far more elastic price response than the health spending account.
We examined the price elasticities in our health plan choice model, including employee premium, health account, donut hole and coinsurance. The largest of the elasticities is for the tax-adjusted employee premium. The least elastic response is for the employee health account. An interesting finding is the greater elasticity of coinsurance compared with the donut hole, or the difference between the deductible and the health account. This result suggests that consumers have greater sensitivity to variations in coinsurance than to changes in the donut hole structure. This finding may challenge some detractors of CDHP plans who suggest consumers will not embrace a plan design with obvious increased cost sharing in the form of a large potential deductible, compared with coinsurance, a much more conventional method of cost-sharing.
Next Steps include adding chronic illness into our plan choice and cross price elasticity estimate using a nested logit model of plan choice.
