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The Magnitude and Nature of Risk Selection in Employer-Sponsored Health Plans

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  • Sean Nicholson
  • 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.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9937.

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Date of creation: Sep 2003
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Publication status: published as Nicholson, Sean, Daniel Polsky, Kate Bundorf, and Rebecca Stein. “The Magnitude and Nature of Risk Selection in Employer-Sponsored Health Plans." Health Services Research 39, 6 Part 1 (2004): 1817-1838.
Handle: RePEc:nbr:nberwo:9937

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  1. Manning, Willard G, et al, 1987. "Health Insurance and the Demand for Medical Care: Evidence from a Randomized Experiment," American Economic Review, American Economic Association, vol. 77(3), pages 251-77, June.
  2. Daniel Polsky & Sean Nicholson, 2004. "Why Are Managed Care Plans Less Expensive: Risk Selection, Utilization, or Reimbursement?," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 71(1), pages 21-40.
  3. Cutler David M. & Zeckhauser Richard J., 1998. "Adverse Selection in Health Insurance," Forum for Health Economics & Policy, De Gruyter, vol. 1(1), pages 1-33, January.
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Cited by:
  1. Lu Ji & Fei Liu, 2007. "HMO versus non-HMO private managed care plans: an investigation on pre-switch consumption," Health Care Management Science, Springer, vol. 10(1), pages 67-80, February.
  2. Jason Shafrin, 2010. "Operating on commission: analyzing how physician financial incentives affect surgery rates," Health Economics, John Wiley & Sons, Ltd., vol. 19(5), pages 562-580.
  3. Shmueli, Amir, 2011. "Switching sickness funds in Israel: Adverse selection or risk selection? Some insights from the analysis of the relative costs of switchers," Health Policy, Elsevier, vol. 102(2), pages 247-254.
  4. Mario Jametti & Thomas von Ungern-Sternberg, 2010. "Risk Selection in Natural-Disaster Insurance," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 166(2), pages 344-364, June.
  5. Jacob Glazer & Thomas G. McGuire, 2006. "Contending with Risk Selection in Health Insurance Markets in Germany," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 7(s1), pages 75-91, 05.
  6. Mario Jametti & Thomas von Ungern-Sternberg, 2006. "Risk Selection in Natural Disaster Insurance - the Case of France," Working Papers 2006_1, York University, Department of Economics.
  7. Grönqvist, Erik, 2004. "Information Updating and Insurance Dropout: Evidence from Dental Insurance," Working Paper Series in Economics and Finance 576, Stockholm School of Economics.

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