Publication Date

August 1995

Abstract

In 1991, The Dannon Company provided 287 of its employees with a choice of healthcare plans. The new plan was less expensive and designed to fit employees' needs better. Contrary to managerial expectation, three-quarters of employees continued to choose the more expensive plan. To study why this was occurring and to determine if these choices reflected employee "mistakes," a cooperative effort was begun between The Dannon Company and Cornell University. This cooperative effort allowed us to investigate this problem using actual employee medical claims.

Analysis revealed employees strive not only to minimize costs, but also to avoid risk in their health care plan decisions. Overall, employees with the most significant cost difference chose the plan with the lowest total costs. This effect translated into financial savings for the employees. Employees were better off as a group with the freedom to make their own selections than they would have been if they had been forced into either of the two available health care options. Thus, this study demonstrated that choice is valuable to employees. Implications for Dannon and for future research are discussed.

Comments

Suggested Citation
Sturman, M. C., Boudreau, J. W. & Corcoran, R. J. (1995). Why do employees keep choosing the expensive health care plan? An investigation of the quality and logic of employee health care plan selections (CAHRS Working Paper #95-18). Ithaca, NY: Cornell University, School of Industrial and Labor Relations, Center for Advanced Human Resource Studies.
http://digitalcommons.ilr.cornell.edu/cahrswp/208



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