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Enrollee mix, treatment intensity, and cost in competing indemnity and HMO plans

  • Altman, Daniel
  • Cutler, David
  • Zeckhauser, Richard

Why do indemnity insurance plans cost substantially more per capita—77% more in our study—than HMOs? We answer this question using data from a large organization’s insurance pool, covering 215,000 lives. We decompose cost differences for eight major medical conditions into four sources: demographics, incidence within demographic groups, treatment intensity, and prices per service. Greater incidence of disease in the indemnity plan (both from demographics themselves and within demographic groups) and higher prices each explain nearly 50% of the difference. Contrary to conventional wisdom, indemnity plans do not have greater treatment intensity.

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File URL: http://www.sciencedirect.com/science/article/B6V8K-47CBCSN-1/2/756023977f7f997af15a3e719e62a899
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Article provided by Elsevier in its journal Journal of Health Economics.

Volume (Year): 22 (2003)
Issue (Month): 1 (January)
Pages: 23-45

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Handle: RePEc:eee:jhecon:v:22:y:2003:i:1:p:23-45
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505560

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  1. David M. Cutler & Mark McClellan & Joseph P. Newhouse & Dahlia Remler, 1998. "Are Medical Prices Declining? Evidence From Heart Attack Treatments," The Quarterly Journal of Economics, MIT Press, vol. 113(4), pages 991-1024, November.
  2. David M. Cutler & Mark McClellan & Joseph P. Newhouse, 2000. "How Does Managed Care Do It?," RAND Journal of Economics, The RAND Corporation, vol. 31(3), pages 526-548, Autumn.
  3. David M. Cutler & Richard J. Zeckhauser, 1998. "Adverse Selection in Health Insurance," NBER Chapters, in: Frontiers in Health Policy Research, Volume 1, pages 1-32 National Bureau of Economic Research, Inc.
  4. Altman, Daniel & Cutler, David M & Zeckhauser, Richard J, 1998. "Adverse Selection and Adverse Retention," American Economic Review, American Economic Association, vol. 88(2), pages 122-26, May.
  5. Cutler, David M. & Zeckhauser, Richard J., 2000. "The anatomy of health insurance," Handbook of Health Economics, in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 11, pages 563-643 Elsevier.
  6. Cutler, David M & McClellan, Mark & Newhouse, Joseph P, 1998. "What Has Increased Medical-Care Spending Bought?," American Economic Review, American Economic Association, vol. 88(2), pages 132-36, May.
  7. Sarah Feldman & David Scharfstein, 1998. "Managed Care Provider Volume," NBER Working Papers 6523, National Bureau of Economic Research, Inc.
  8. Ellis, Randall P, 1989. "Employee Choice of Health Insurance," The Review of Economics and Statistics, MIT Press, vol. 71(2), pages 215-23, May.
  9. McClellan, Mark & Cutler, David & Newhous, Joseph P., 2000. "How Does Managed Care Do It?," Scholarly Articles 2643884, Harvard University Department of Economics.
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