Subsidization and Choice in the Group Health Insurance Market

27 Pages Posted: 31 Aug 2005

See all articles by Yu-Luen Ma

Yu-Luen Ma

Illinois State University - Katie Insurance School

Mark J. Browne

St. John's University - Peter J. Tobin College of Business

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.

Suggested Citation

Ma, Yu-Luen and Browne, Mark J., Subsidization and Choice in the Group Health Insurance Market. Journal of Risk and Insurance, Vol. 72, No. 3, pp. 413-439, September 2005, Available at SSRN: https://ssrn.com/abstract=782997

Yu-Luen Ma (Contact Author)

Illinois State University - Katie Insurance School ( email )

Normal, IL 61790
United States

Mark J. Browne

St. John's University - Peter J. Tobin College of Business ( email )

New York, NY
United States

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