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

30 Pages Posted: 5 Sep 2003 Last revised: 5 Nov 2010

See all articles by Sean Nicholson

Sean Nicholson

Cornell University - Department of Policy Analysis & Management (PAM); National Bureau of Economic Research (NBER)

M. Kate Bundorf

Stanford University - Department of Health Research and Policy; National Bureau of Economic Research (NBER)

Rebecca M. Stein

University of Pennsylvania - Department of Economics

Daniel Polsky

Bloomberg School of Public Health, Department of Health Policy and Management, Johns Hopkins University; Johns Hopkins University - Carey Business School

Date Written: September 2003

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.

Suggested Citation

Nicholson, Sean and Bundorf, M. Kate and Stein, Rebecca M. and Polsky, Daniel, The Magnitude and Nature of Risk Selection in Employer-Sponsored Health Plans (September 2003). NBER Working Paper No. w9937, Available at SSRN: https://ssrn.com/abstract=439618

Sean Nicholson (Contact Author)

Cornell University - Department of Policy Analysis & Management (PAM) ( email )

120 Martha Van Rensselaer Hall
Ithaca, NY 14853
United States
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National Bureau of Economic Research (NBER)

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M. Kate Bundorf

Stanford University - Department of Health Research and Policy ( email )

Stanford, CA 94305
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Rebecca M. Stein

University of Pennsylvania - Department of Economics ( email )

Ronald O. Perelman Center for Political Science
133 South 36th Street
Philadelphia, PA 19104-6297
United States

Daniel Polsky

Bloomberg School of Public Health, Department of Health Policy and Management, Johns Hopkins University ( email )

624 North Broadway
Baltimore, MD 21205
United States

Johns Hopkins University - Carey Business School ( email )

100 International Drive
Baltimore, MD 21202
United States

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