Valuing Variety: How Much Do Workers Value Having Choices Among Health Insurance Plans?
- Presenter:
Chair: Ted Frech; Discussant: Ted Frech Mon June 5, 2006 15:30-17:00 Room 226
Authors: Jean Abraham, University of Minnesota (abrah042@umn.edu) and Anne Beeson Royalty, Indiana University Purdue University Indianapolis (royalty@iupui.edu)
Title: Valuing Variety: How Much Do Workers Value Having Choices Among Health Insurance Plans?
Rationale: In response to rising health care costs, insurers are introducing new products and employers are making changes to benefit designs, both in terms of the number and types of plans they offer to workers. Employers face tradeoffs when offering plan choice including fixed administrative costs per plan, higher premiums given lower per plan enrollment, adverse selection, and spiraling premiums. In contrast, there may be benefits associated with plan choice, particularly if the workforce exhibits heterogeneous preferences.
Objective: The primary objective of this study is to develop a model derived from the welfare economics literature to empirically estimate the monetary value that workers place on having variety with respect to the number and types of health plans offered to them through their place of employment.
Methodology: Obtaining estimates of the gains or losses associated with changes in the number or types of plans offered to workers is a two-step process. The first step is to empirically estimate multinomial logit and nested multinomial logit models of a worker’s choice of health plan, specifying the determinants of demand to include the employee’s premium contribution, the coinsurance rate, deductible, and covered benefits (e.g., prescription drug coverage). Second, we use integration methods to obtain the surplus function for our probabilistic health plan demand functions. Using the surplus function and specific values of the explanatory variables, we then estimate the gain or loss realized when the set of offered health plans changes. Calculations are performed for several simulated changes in plan offerings. We use data on 1,530 workers from the 1999 and 2001 linked Household Component-Insurance Component MEPS database. The Household Component (HC) is a random sample of the civilian, non-institutionalized U.S. population containing data on demographics, employment status, and health insurance. For individuals with an offer of employer coverage, surveyors asked for employer contact information and these employers were surveyed about their health plans offerings. The results comprise the MEPS Insurance Component (IC) database which contains information on premiums, employee contributions, plan type (e.g., HMOs, PPOs, and FFS plans), coinsurance, deductibles, and covered benefits for up to four comprehensive health plans offered to employees of private establishments and all plans offered by public employers.
Results: Preliminary estimates of the compensating variation for changes in the number and types of plans range from $165 to $1992.
Conclusions: As policymakers assess the effects of the managed care revolution and the consumer-driven health care movement, it would clearly be useful to know the value that workers put on having a variety of health plans from which to choose, as well as the extent of the losses incurred as they lose options. Employers would benefit from knowing how valuable a variety of health plan choices really is to workers, particularly since they face tradeoffs when designing their health insurance benefits.
