Pricing and Welfare in Health Plan Choice

53 Pages Posted: 30 Jun 2008 Last revised: 4 Sep 2022

See all articles by Kate Bundorf

Kate Bundorf

Duke University; National Bureau of Economic Research (NBER)

Jonathan Levin

Stanford Graduate School of Business; Stanford University - Department of Economics; National Bureau of Economic Research (NBER)

Neale Mahoney

University of Chicago Booth School of Business; National Bureau of Economic Research (NBER)

Date Written: June 2008

Abstract

Prices in government and employer-sponsored health insurance markets only partially reflect insurers' expected costs of coverage for different enrollees. This can create inefficient distortions when consumers self-select into plans. We develop a simple model to study this problem and estimate it using new data on small employers. In the markets we observe, the welfare loss compared to the feasible efficient benchmark is around 2-11% of coverage costs. Three-quarters of this is due to restrictions on risk-rating employee contributions; the rest is due to inefficient contribution choices. Despite the inefficiency, we find substantial benefits from plan choice relative to single-insurer options.

Suggested Citation

Bundorf, Kate and Levin, Jonathan D. and Mahoney, Neale, Pricing and Welfare in Health Plan Choice (June 2008). NBER Working Paper No. w14153, Available at SSRN: https://ssrn.com/abstract=1152693

Kate Bundorf (Contact Author)

Duke University

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Jonathan D. Levin

Stanford Graduate School of Business ( email )

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Stanford University - Department of Economics ( email )

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Neale Mahoney

University of Chicago Booth School of Business ( email )

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National Bureau of Economic Research (NBER) ( email )

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