How Common are Dominated Health Plan Options? Evidence from Employer Health Benefits with High-Deductible Plans

We analyze detailed data on plan designs from the Kaiser Family Foundation Employer Health Benefits Survey for 331 firms that offered employees both a qualifying high-deductible health plan and a lower-deductible option. For an employee at these firms selecting the lower-deductible option will decrease the deductible by $1,300 on average. However, the cost of that additional coverage for the employee, from increased employee premiums and forgone firm contributions to health savings accounts, is nearly as large, averaging $1,100. In 65% of firms the high-deductible option would result in lower maximum possible spending for the employee for the year. Further, we estimate based on simplified plan representations that the high-deductible plan financially dominates the lower-deductible option for employees at roughly half of the firms. Employees facing a range of possible medical-spending distributions would save on average over $500 per year with the high-deductible option, often with no additional annual financial risk. While we cannot pin down the mechanism behind these patterns conclusively, the evidence is consistent with firms passing through lower average costs for high-deductible plans generated by adverse selection patterns to the employees choosing those plans. These results raise questions about the net effect of offering employees choices over plans with different coverage levels. Rather than creating a classic trade-off between risk and expected spending, at many firms plan options generate disparities in overall benefit value for employees who opt into different levels of coverage.