Dominated Options in Health-Insurance Plans

Chenyuan Liu and Justin R. Sydnor

No 24392, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Recent studies have found that many people select into health plans with higher coverage (e.g., lower deductibles) even when those plans are financially dominated by other options. We explore whether having dominated options is common by analyzing data on plan designs from the Kaiser Family Foundation Employer Health Benefits Survey for firms that offered employees both a high-deductible (HD) health plan and a lower-deductible (LD) option. In 65% of firms the high-deductible option would result in lower maximum possible health spending for the employee for the year. We estimate that the HD plan financially dominates the LD plan at roughly half of firms across a wide range of possible health spending needs employees might anticipate. The expected savings from selecting the HD plan are typically over $500 per year, often with no increase in financial risk. We present evidence that these patterns may arise naturally from employers passing through large average-cost differences between HD and LD plans to their employees. We discuss the implications of those dynamics for the nature of transfers between employees and the efficiency of health spending.

JEL-codes: D22 G22 I13 (search for similar items in EconPapers)
Date: 2018-03
New Economics Papers: this item is included in nep-hea and nep-ias
Note: EH LS
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Citations: View citations in EconPapers (1)

Published as Chenyuan Liu & Justin Sydnor, 2022. "Dominated Options in Health Insurance Plans," American Economic Journal: Economic Policy, vol 14(1), pages 277-300.

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