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Selection stories: Understanding movement across health plans

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  • Cutler, David
  • Lincoln, Bryan
  • Zeckhauser, Richard

Abstract

This study assesses the factors influencing the movement of people across health plans. We distinguish three types of cost-related transitions: adverse selection, the movement of the less healthy to more generous plans; adverse retention, the tendency for people to stay where they are when they get sick; and aging in place, enrollees' inertia in plan choice, leading plans with older enrollees to increase in relative cost over time. Using data from the Group Insurance Commission in Massachusetts, we show that adverse selection and aging in place are both quantitatively important. Either can materially impact equilibrium enrollments, especially when premiums to enrollees reflect these costs.

Suggested Citation

  • Cutler, David & Lincoln, Bryan & Zeckhauser, Richard, 2010. "Selection stories: Understanding movement across health plans," Journal of Health Economics, Elsevier, vol. 29(6), pages 821-838, December.
  • Handle: RePEc:eee:jhecon:v:29:y:2010:i:6:p:821-838
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    References listed on IDEAS

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    1. M. Kate Bundorf & Jonathan Levin & Neale Mahoney, 2012. "Pricing and Welfare in Health Plan Choice," American Economic Review, American Economic Association, pages 3214-3248.
    2. Strombom, Bruce A. & Buchmueller, Thomas C. & Feldstein, Paul J., 2002. "Switching costs, price sensitivity and health plan choice," Journal of Health Economics, Elsevier, pages 89-116.
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    7. Cutler David M. & Zeckhauser Richard J., 1998. "Adverse Selection in Health Insurance," Forum for Health Economics & Policy, De Gruyter, pages 1-33.
    8. M. Kate Bundorf & Jonathan Levin & Neale Mahoney, 2012. "Pricing and Welfare in Health Plan Choice," American Economic Review, American Economic Association, pages 3214-3248.
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    10. Matthew L. Maciejewski & Bryan Dowd & Heidi O'Connor, 2004. "Multiple Prior Years of Health Expenditures and Medicare Health Plan Choice," International Journal of Health Economics and Management, Springer, pages 247-261.
    11. David M. Cutler & Sarah J. Reber, 1998. "Paying for Health Insurance: The Trade-Off between Competition and Adverse Selection," The Quarterly Journal of Economics, Oxford University Press, pages 433-466.
    12. Anne Beeson Royalty & Neil Solomon, 1999. "Health Plan Choice: Price Elasticities in a Managed Competition Setting," Journal of Human Resources, University of Wisconsin Press, pages 1-41.
    13. Elmendorf, Douglas W. & Gregory Mankiw, N., 1999. "Government debt," Handbook of Macroeconomics,in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 25, pages 1615-1669 Elsevier.
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    Cited by:

    1. Christiansen, Marcus & Eling, Martin & Schmidt, Jan-Philipp & Zirkelbach, Lorenz, 2012. "Who is Changing Health Insurance Coverage? Empirical Evidence on Policyholder Dynamics," Working Papers on Finance 1223, University of St. Gallen, School of Finance.
    2. Frech, Ted E & Smith, Michael P, 2015. "Anatomy of a Slow-Motion Health Insurance Death Spiral," University of California at Santa Barbara, Economics Working Paper Series qt0w64d54d, Department of Economics, UC Santa Barbara.
    3. Jacob Glazer & Thomas G. McGuire & Julie Shi, 2016. "Risk Adjustment of Health Plan Payments to Correct Inefficient Plan Choice from Adverse Selection," NBER Chapters,in: Measuring and Modeling Health Care Costs National Bureau of Economic Research, Inc.
    4. Michiel Bijlsma & Jan Boone & Gijsbert Zwart, 2014. "Competition leverage: how the demand side affects optimal risk adjustment," RAND Journal of Economics, RAND Corporation, pages 792-815.
    5. Clark, Robert L. & Morrill, Melinda Sandler & Vanderweide, David, 2014. "The effects of retiree health insurance plan characteristics on retirees’ choice and employers’ costs," Journal of Health Economics, Elsevier, pages 119-129.
    6. Clark, Robert L. & Morrill, Melinda Sandler & Vanderweide, David, 2014. "The effects of retiree health insurance plan characteristics on retirees’ choice and employers’ costs," Journal of Health Economics, Elsevier, pages 119-129.
    7. Wuppermann, Amelie Catherine, 2011. "Empirical Essays in Health and Education Economics," Munich Dissertations in Economics 13187, University of Munich, Department of Economics.
    8. Benjamin R. Handel, 2011. "Adverse Selection and Switching Costs in Health Insurance Markets: When Nudging Hurts," NBER Working Papers 17459, National Bureau of Economic Research, Inc.
    9. McGuire, Thomas G. & Newhouse, Joseph P. & Normand, Sharon-Lise & Shi, Julie & Zuvekas, Samuel, 2014. "Assessing incentives for service-level selection in private health insurance exchanges," Journal of Health Economics, Elsevier, pages 47-63.

    More about this item

    Keywords

    Adverse retention Aging in place Health insurance;

    JEL classification:

    • I0 - Health, Education, and Welfare - - General
    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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