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

  • Sean Nicholson
  • Kate Bundorf
  • Rebecca M. Stein
  • Daniel Polsky

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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File URL: http://www.nber.org/papers/w9937.pdf
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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. 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.
  2. 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.
  3. 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.
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