Subsidization and Choice in the Group Health Insurance Market |
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| Authors: | Yu-Luen Ma Mark Browne |
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| Institution: | Yu-Luen Ma is an Associate Professor of Risk Management and Insurance at the Katie School of Insurance and Financial Services, Illinois State University. Mark Browne is the Gerald D. Stephens CPCU Chair in Risk Management and Insurance at the School of Business, University of Wisconsin-Madison. The author can be contacted via e-mail: . |
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| Abstract: | This study investigates the effect of group health insurance plan choice on insurance unit price. The empirical findings suggest that the unit price of insurance, as measured by the ratio of the premium to expected indemnity benefits, is lower in group plans that offer employees a choice of different insurance options and require a premium contribution than it is in plans lacking at least one of these two features. The analyses suggest that lower unit prices are related to an increase in indemnity benefits and that the reduction in the unit price is greater for lower risks. The findings indicate that although subsidization of high risks by low risks occurs with group health insurance, the degree of subsidization is less when employees are offered a choice of health insurance plans. |
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