TY  - JOUR
AU  - Liu, Chenyuan
AU  - Sydnor, Justin R
TI  - Dominated Options in Health-Insurance Plans
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 24392
PY  - 2018
Y2  - March 2018
DO  - 10.3386/w24392
UR  - http://www.nber.org/papers/w24392
L1  - http://www.nber.org/papers/w24392.pdf
N1  - Author contact info:
Chenyuan Liu
Tsinghua University
Weilun Building 548
Beijing
China
E-Mail: chenyuan.liu@wisc.edu

Justin R. Sydnor
Wisconsin School of Business, ASRMI Department
University of Wisconsin at Madison
975 University Avenue, Room 5287
Madison, WI 53726
Tel: 608/263-2138
E-Mail: jsydnor@bus.wisc.edu
AB  - 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.
ER  -