Employer Contribution and Premium Growth in Health Insurance
We study whether employer premium contribution schemes could impact the pricing behavior of health plans and contribute to rising premiums. Using 1991-2011 data before and after a 1999 premium subsidy policy change in the Federal Employees Health Benefits Program (FEHBP), we find that the employer premium contribution scheme has a differential impact on health plan pricing based on two market incentives: 1) consumers are less price sensitive when they only need to pay part of the premium increase, and 2) each health plan has an incentive to increase the employer's premium contribution to that plan. Both incentives are found to contribute to premium growth. Counterfactual simulation shows that average premium would have been 10% less than observed and the federal government would have saved 15% per year on its premium contribution had the subsidy policy change not occurred in the FEHBP.
We would like to thank Melissa Kearney, Roger Betancourt, Emel Filiz-Ozbay, Kenneth Leonard, as well as seminar participants at the Department of Economics at University of Maryland, National Center for Health Statistics, Society of Government Economists, and International Industrial Organization Society for helpful comments and suggestions. We are particularly grateful to Brenna Scheideman and Lionell Jones at the Office of Personnel Management for providing us data and patiently answering all of our questions. Financial support from the University of Maryland is acknowledged. All errors are ours. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Yiyan Liu & Ginger Zhe Jin, 2015. "Employer contribution and premium growth in health insurance," Journal of Health Economics, vol 39, pages 228-247.