To examine the effect of price on the demand for health insurance by early retirees between the ages of 55 and 64.
Administrative health plan enrollment data from a medium‐sized U.S. employer.
The analysis takes advantage of a natural experiment created by the firm's health insurance contribution policy. The amount the firm contributes toward retiree health insurance coverage depends on when a person retired and her years of service at that date. As a result of this policy, there is considerable variation in out‐of‐pocket premiums faced by individuals in the data. This variation is independent of the nonprice attributes of the health insurance plans offered and is plausibly exogenous to individual characteristics that are likely to affect the demand for insurance. A probit model is used to estimate the decision to take‐up employer‐sponsored health insurance by early retirees between the ages of 55 and 64. Demand for insurance is measured as a function of out‐of‐pocket premiums and a set of individual characteristics.
We find that price has a small but statistically significant effect on the decision to take up coverage. Estimated price elasticities range from −0.10 to −0.16, depending on the sample.
The implied elasticities are comparable with results found in previous studies using very different data. Our estimates indicate that policy proposals for a Medicare buy‐in or a nongroup tax credit will have a modest impact on take‐up rates of near‐elderly retirees.