Let Them Have Choice: Gains from Shifting Away from Employer-Sponsored Health Insurance and Toward an Individual Exchange

47 Pages Posted: 1 Feb 2010 Last revised: 14 May 2023

See all articles by Leemore S. Dafny

Leemore S. Dafny

Northwestern University - Department of Management & Strategy; National Bureau of Economic Research (NBER)

Kate Ho

National Bureau of Economic Research (NBER); Princeton University - Department of Economics

Mauricio J. Varela

University of Arizona

Date Written: January 2010

Abstract

Most non-elderly Americans purchase insurance through their employers, which sponsor a limited number of plans. We estimate how much employees would be willing to pay for the right to apply their employer subsidy to the plan of their choosing. We make use of a proprietary dataset containing information on plan offerings and enrollment for 800+ large employers between 1998 and 2006; the dataset represents over 10 million Americans annually. We estimate a model of employee preferences using the set of plans they are offered. Using the estimated parameters from this model, we predict employees' choices in a hypothetical world in which additional plans in a market are available to them on the same terms, i.e. tax-free and subsidized by their employers. Holding employer outlays constant, we estimate that the median welfare gain from expanding choice amounts to roughly 20 percent of premiums. For the vast majority of employee groups and alternative model specifications, the gains from choice are likely to outweigh potential premium increases associated with a transition from large group to individual pricing.

Suggested Citation

Dafny, Leemore S. and Ho, Kate and Ho, Kate and Varela, Mauricio J., Let Them Have Choice: Gains from Shifting Away from Employer-Sponsored Health Insurance and Toward an Individual Exchange (January 2010). NBER Working Paper No. w15687, Available at SSRN: https://ssrn.com/abstract=1544718

Leemore S. Dafny (Contact Author)

Northwestern University - Department of Management & Strategy ( email )

Kellogg School of Management
2001 Sheridan Road
Evanston, IL 60208
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Kate Ho

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Princeton University - Department of Economics ( email )

Princeton, NJ 08544-1021
United States

Mauricio J. Varela

University of Arizona ( email )

Department of History
Tucson, AZ 85721
United States

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