Price and the health plan choices of retirees

This study analyzes health plan choices of retirees in an employer-sponsored health benefits program that resembles “premium support” models proposed for Medicare. In this program, out-of-pocket premiums depend on when an individual retired and his or her years of service as of that date. Since this price variation is exogenous to unobserved plan attributes and retiree characteristics, it is possible to obtain unbiased premium elasticity estimates. The results indicate a significantly negative effect of premiums. The implied elasticities are at the low end of the range found in previous studies on active employees.