Ruhr Economic Papers

Ruhr Economic Papers #304

In Absolute or Relative Terms? How Framing Prices Affects the Consumer Price Sensitivity of Health Plan Choice

by Hendrik Schmitz and Nicolas R. Ziebarth

RWI, University of Duisburg-Essen, 12/2011, 51 S./p., 8 Euro, ISBN 978-3-86788-349-8

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Abstract

This paper provides field evidence on (a) how price framing affects consumers’ decision
to switch health insurance plans and (b) how the price elasticity of demand for health
insurance can be influenced by policymakers through simple regulatory efforts. In
2009, in order to foster competition among health insurance companies, German
federal regulation required health insurance companies to express price differences
between health plans in absolute Euro values rather than percentage point payroll tax
differences. Using individual-level panel data, as well as aggregated health plan-level
panel data, we find that the reform led to a sixfold increase in an individual’s switching
probability and a threefold demand elasticity increase.

JEL-Classification: H51, I11, I18

Keywords: Health insurance; health plan switching; price competition; price elasticity; SOEP

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