Working Paper: NBER ID: w9937
Authors: Sean Nicholson; M. Kate Bundorf; Rebecca M. Stein; Daniel Polsky
Abstract: Most existing studies of risk selection in the employer-sponsored health insurance market are case studies of a single employer or of an employer coalition in a single market. We examine risk selection in the employer-sponsored market by applying a switcher' methodology to a national, panel data set of enrollees in employer-sponsored health plans. We find that people who switched from a non-HMO to an HMO plan used 11 percent fewer medical services in the period prior to switching than people who remained in the non-HMO plan, and that this relatively low use persists once they enroll in an HMO. Furthermore, people who switch from an HMO to a non-HMO plan used 18 percent more medical services in the period prior to switching than those who remained in an HMO plan. HMOs would most likely continue to experience favorable risk selection if employers adjusted health plan payments based on enrollees' gender and age because the selection appears to occur based on enrollee characteristics that are difficult to observe such as preferences for medical care and health status.
Keywords: risk selection; HMO; employer-sponsored health plans; health insurance
JEL Codes: I11
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Individuals who switched from a non-HMO to an HMO plan (I13) | Used 11% fewer medical services prior to switching (I11) |
| Individuals who switched from a non-HMO to an HMO plan (I13) | Lower medical service usage persists after enrollment in the HMO (I13) |
| Individuals who switched from an HMO to a non-HMO plan (I13) | Used 18% more medical services before switching (I11) |
| Individuals who switched from an HMO to a non-HMO plan (I13) | Impacts future medical service utilization (I11) |
| 10% of HMO enrollees switched to a non-HMO (I13) | Predicted to reduce HMO aggregate medical expenditures by 20% annually (I13) |
| Risk selection (G52) | Influences premium pricing and enrollment dynamics (G52) |