Employee income, premium pricing, and high deductible health plan enrollment

Abstract

ABSTRACT Employer health plan premiums are often subsidized at different levels according to enrollee income. When enrollees cross an income threshold, they lose some of the income-based subsidy resulting in higher premium prices for their plan choices. We use these discontinuous subsidy reductions, which induce relative price changes across plans, to assess the relationship between premium price and plan choice for workers in a large, national firm. We segmented individuals by income into $100 bins surrounding a $40,000 subsidy threshold and $200 bins surrounding a $110,000 subsidy threshold. We plotted these bins to visualize potential discontinuities and then estimated regression models that fit linear trends to the binned data at each subsidy threshold. Higher income workers were more likely to enrol in high deductible health plans (HDHPs) when those plans became relatively cheaper compared to traditional plans (estimate = −0.057, standard error = 0.027; p-value = 0.02). In contrast, lower income workers were less likely to enrol in a HDHP when the relative price fell (estimate = 0.065, standard error = 0.029, p-value = 0.03). Our findings indicate that responses to relative price distortions between insurance plan options differ by income and that benefit design should account for such heterogeneity.