Abstract
AbstractWe provide a framework for large employers designing a menu of health plan offerings that differ on both financial and nonfinancial dimensions. Using administrative data from Harvard University, we estimate a model of plan choice and utilization, and evaluate the benefits of cost sharing and plan variety. For this population of consumers, and a single plan with a generous out‐of‐pocket maximum and zero deductible, modest cost sharing of approximately 30% maximizes average employee surplus. Gains from offering choice are meaningful only if financial differentiation is paired with differentiation along other dimensions where consumer preferences are correlated with efficient coverage levels.
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