CERGAS Seminar "Too Sticky to Switch? Retirement and Health Plan choices of the elderly"

A common aim of the introduction of managed competition is to increase efficiency of the market by stimulating competition, leading to competitive pricing and better quality of services. However, a number of obstacles exist in establishing successful managed competition health insurance markets. Low price sensitivity of consumers coupled with highly concentrated insurance markets provides no incentives to providers to lower costs or increase quality. Therefore, the success of managed competition seems limited due to low switching rates of consumers. Prior literature largely focuses on identifying buyer price sensitivity and finds a substantial degree of inertia. Nevertheless, it would be too naive to assume that in general all consumers are inert when it comes to health plan choices. If selection into insurance itself is related to heterogeneity of individual preferences, it seems plausible to presume that individual characteristics themselves matter for health plan choices over and above plan features such as premiums and deductibles. In this paper, we first empirically investigate whether consumers display inertia with respect to a change in the premium of their insurance plan. We then depart from prior literature in an important way, in that we recognize the presence of consumer characteristics as boundary conditions to this inert behavior. Unlike others, instead of focusing solely on plan specifics such as premium elasticity, we draw attention to a specific consumer characteristic, retirement, a salient life transition event that we argue has the potential to impact switching behavior of consumers. We use unique administrative individual level panel data (2006-2014) from one of the largest health insurance providers in Switzerland and employ a regression discontinuity approach. While we find significant inertia in consumer switching in response to premium changes overall, we observe significant switching (models, deductibles and exit from provider) as a response to retirement. We discuss these findings and its implications for the success of managed competition. First, it is of immediate relevance to policy makers and health systems worldwide owing to the increasing uptake of managed competition models in the face of burgeoning healthcare costs. Second, owing to an ageing population an understanding of the interplay between aspects of social security and health care becomes increasingly important to be able to leverage the correct policy levers. Finally, knowledge on consumer heterogeneity in terms of health plan choices and switching will allow firms to sort consumers based on this observed heterogeneity, provide revised pricing and tailor benefits packages that may lead to efficient resource allocation and consequently improve market efficiency.

Please send an email to cergas@unibocconi.it to confirm your attendance.
Please note that the access to the building is restricted, this means you will have to register at the Reception desk (give your ID card) and get QR code to go upstairs.