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This study examined the decisions of small group employees to enroll in prepaid plans offered through Healthcare Group of Arizona (HCGA), a state-sponsored and state-administered voluntary insurance program.The study population included 653 potential employee enrollees who were offered the option of two health plans between January 1993 and June 1993, with 447 enrolling in one of the two plans. Data sources included two telephone surveys, HCGA administrative files, and enrollment application forms.The estimates of adjusted price elasticity were in the range of −0.12 to −0.24 for employees with prior insurance and were in the range of −0.42 to −0.51 for employees without prior insurance. The likelihood of enrolling in HCGA increased with log(income) and decreased with log(income) squared. The average income elasticity across income groups was 0.12.The results indicate that small group employees without prior insurance were more sensitive to the price of health insurance than those with prior insurance. Healthcare Group of Arizona health plans may have been viewed as inferior goods by high income employees possible because of their association with the Medicaid program.