A simultaneous equations model of employer strategies for controlling health benefit costs

We estimated a simultaneous equations model of employer health insurance cost control strategies and their effectiveness in reducing health plan premiums. We hypothesized that as premiums increase, employers will shop more actively for health plans, place incentives on providers to control medical care costs, increase employee cost sharing for medical care, and be more likely to offer an HMO. In turn, we expected each of these strategies, except offering an HMO, to reduce average health plan premiums. The model was estimated with 1985 data from a sample of 922 Minnesota employers. We found that high premiums are related to three of the proposed cost control strategies. Employers with higher premiums shop more, are more likely to seek provider incentives, and offer an HMO. However, these employers appear to have lower employee cost sharing. Employers with higher employee cost sharing and those that offer an HMO had lower health plan premiums.