The Price Sensitivity of Health Plan Choice among Retirees: Evidence from the German Social Health Insurance

In this paper, we investigate two key determinants of the price sensitivity of health plan demand among retirees in the real-life setting of the German social health insurance (SHI): the size of the choice set and the salience of premium differences. Using information on health plan switches in the German Socio Economic Panel, augmented with information on individual’s choice sets and variation in both determinants over time and across regions as well as between different groups, 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. These results suggest that simplifying the choice environment could help retirees leave less money on the table and thereby also improve the functioning of the health insurance market that relies on consumers making informed choices.