The mediating effect of morbidity on price and benefits in the context of consumer health insurance choice

This dissertation investigates how factors such as morbidity, out-of-pocket (OOP) premiums and benefits affect consumer choice of health insurance. Individual and family data from 12 large, fully insured employer groups were obtained from Blue Cross Blue Shield of Minnesota and merged with survey data. The employers included in this analysis offered only one managed care plan and one non-managed care plan from Blue Cross Blue Shield of Minnesota to their employees at open enrollment time in 1997 and 1998.; Logistic regression models were specified to quantify the relationships between morbidity, out-of-pocket premiums and choice of health insurance. Out-of-pocket premium elasticity results indicate that demand for health insurance tends to be price inelastic on average. These estimates decrease in absolute value as individual and family morbidity levels increase. I calculate that a {dollar}10 out-of-pocket premium increase will decrease the market share of the managed care plan by roughly 10 percentage points (i.e. from 30 percent to 20 percent) for individuals and 6 percentage points for families. Although the main effect for morbidity is not significantly related to choice of health insurance in this sample, price elasticity decreases as individual and family morbidity increase. Including an actuarial benefit factor in the models indicated that both individuals and family members were highly sensitive to changes in plan benefit richness. Benefit-related elasticity estimates tended to be greater than 1.0 among healthy individuals and increased by a factor of 3 as morbidity levels increased. Additionally, I calculate that a {dollar}10-equivalent benefit decrease will reduce the market share of the managed care plan by 30 percentage points among the sickest individuals and by about 15 percentage points for the sickest families.