The price sensitivity of health plan choice: Evidence from retirees in the German social health insurance

We investigate two determinants of the price sensitivity of health plan demand: the size of the choice set and the salience of premium differences. We use variation in the choice set over time and between regions in the German Social Health Insurance (SHI), and an increase in the salience of premium differences introduced by a recent reform that changed how premiums are framed and paid. Using information on health plan switches of retirees in the German Socio Economic Panel, augmented with information on individuals’ choice sets we find that retirees are less likely to react to potential savings from switching when they have more plans to choose from and when differences between premiums are less salient. The results imply that simplifying choices could save consumers money and also improve the functioning of the health insurance market.