Out of Pocket Costs and Health Insurance Take-Up Rates

Background: Over the first ten years of this century, the share of the US population covered by employer-sponsored health insurance plans experienced a significant decline. A decrease in the take-up rate accounts for about a quarter of this decline. Usually, the increasing share of the premium that is paid by workers is used to explain the decline in the take-up rate. However, in recent years the increase in copayments, deductible and coinsurance rate has far outpaced the increase in worker contribution. Objective: In this study we analyze the impact of out-of-pocket (OOP) costs, which consist of both workers’ contribution toward the premium and expected expenditures, on the take-up rate for firms that offer multiple plan types. Methods: Using data from the Employer Health Benefits Survey we estimated a pooled ordinary least squares and a fixed effects model. Since we have information about different types of health insurance plans offered by the firm, we derive the cross-price elasticity of coverage. Results: Our fixed effects estimations suggest that workers respond to an increase in the out-of-pocket contributions for Health Maintenance Organization (HMO) plans by switching to PPO plans without impacting the overall take-up rate, while workers respond to increases in the out-of-pocket contribution for Preferred Provider Organization (PPO) plans by switching to HMO plans or dropping out of the group coverage. Conclusion: In general, we found that the estimated elasticities are too small to explain the overall drop in take-up rates even in light of the large increases in required worker contributions and expected expenditures. Still, we highlight the growing importance of expected expenditures in explaining take-up rates.