Health plan choices are associated with lower premiums for employees
Research Activities, October 2010, No. 362
Employees are often faced with a dizzying array of options when it comes to selecting a health plan at work. When multiple plans are offered by employers, it is usually done to satisfy the employees' need for different services and insurance products. It may also be done to create competition among plans. A recent study has found that employers who do offer health plan choices have lower average premiums, mostly because the employees select less generous plans. In addition, more employees are covered by health insurance when employers offer multiple plans.
Kate Bundorf, Ph.D., of Stanford University School of Medicine, analyzed data from a 1993 health insurance survey of 22,890 public and private employers in 10 States. The survey asked every employer about the business, the number and types of employees, and information about health benefits offered. Only employers with 25 or more employees were selected for the analysis of 5,153 employers.
Among these employers, 43 percent offered their workers more than one health plan, including 71 percent of firms with more than 250 employees. Of those offering a choice, 21 percent fully subsidized all plans with no employee contribution necessary. Monthly plan premiums were lower for firms offering a choice ($149) compared with those offering a single plan ($153). There were also a higher proportion of covered workers at employers who offered choice (0.73) compared with nonchoice companies (0.63).
Employers offering plan choices and paying all premiums had greater average plan generosity and higher rates of coverage compared with firms requiring employee contributions to all plans. Even when Dr. Bundorf controlled for employer and market characteristics, having a choice of health plans was associated with both lower average premiums and higher rates of coverage. The study was supported in part by the Agency for Healthcare Research and Quality (HS11668).
See "The effects of offering health plan choice within employment-based purchasing groups," by Dr. Bundorf in the The Journal of Risk and Insurance 77(1), pp. 105-127, 2010.