Medigap premiums and Medicare HMO enrollment

OBJECTIVE: Markets for Medicare HMOs (health maintenance organizations) and supplemental Medicare coverage are often treated separately in existing literature. Yet because managed care plans and Medigap plans both cover services not covered by basic Medicare, these markets are clearly interrelated. We examine the extent to which Medigap premiums affect the likelihood of the elderly joining managed care plans. DATA SOURCES: The analysis is based on a sample of Medicare beneficiaries drawn from the 1996-1997 Community Tracking Study (CTS) Household Survey by the Center for Studying Health System Change. Respondents span 56 different CTS sites from 30 different states. Measures of premiums for privately-purchased Medigap policies were collected from a survey of large insurers serving this market. Data for individual, market, and HMO characteristics were collected from the CTS, InterStudy, and HCFA (Health Care Financing Administration). STUDY DESIGN: Our analysis uses a reduced-form logit model to estimate the probability of Medicare HMO participation as a function of Medigap premiums controlling for other market- and individual-level characteristics. The logit coefficients were then used to simulate changes in Medicare participation in response to changes in Medigap premiums. PRINCIPAL FINDINGS: We found that Medigap premiums vary considerably among the geographic markets included in our sample. Measures of premiums from different insurers and for different types of Medigap policies were generally highly correlated across markets. Our models consistently indicate a strong positive relationship between Medigap premiums and HMO participation. This result is robust across several specifications. Simulations suggest that a one standard deviation increase in Medigap premiums would increase HMO participation by more than 8 percentage points. CONCLUSIONS: This research provides strong evidence that Medigap premiums have a significant effect on seniors' participation in Medicare HMOs. Policy initiatives aimed at lowering Medigap premiums will likely discourage enrollment in Medicare HMOs, holding other factors constant. Although the Medigap premiums are just one factor affecting the future penetration rate of Medicare HMOs, they are an important driver of HMO enrollment and should be considered carefully when creating policy related to seniors' supplemental coverage. Similarly, our results imply that reforms to the Medicare HMO market would influence the demand for Medigap policies.     

Consumer information surplus and adverse selection in competitive health insurance markets: an empirical study

If premiums for health insurance are not risk related, there exists a consumer information surplus that may result in adverse selection. Our results indicate that insurers can greatly reduce this surplus by risk-adjusting the premium. We conclude that there need not be any substantial unavoidable consumer information surplus if consumers can choose whether to take a deductible for a one- or two-year health insurance contract with otherwise identical benefits. Therefore, adverse selection need not be a problem in a competitive insurance market with risk-adjusted premiums or vouchers and with such a consumer choice of health plan.     

Do determinants of medicare supplemental coverage choice vary by income

Using data from the Community Tracking Study Household Survey (1998-99), we estimate the relationship between Medigap premiums and senior Medicare beneficiaries' supplemental coverage decisions. All seniors are more likely to be enrolled in an HMO in markets with higher Medigap prices. Lower income seniors are particularly sensitive to Medigap premiums and are more likely to have no supplemental coverage when faced with higher Medigap premiums. As Medicare supplemental options evolve in response to the 2003 Medicare Modernization Act, it is important to consider that lower income beneficiaries may respond to price changes and other factors differently than their higher income counterparts.     

Medigap coverage and Medicare spending: a second look

Medicare supplemental insurance (Medigap) provides important financial protections for many low- and moderate-income beneficiaries in Medicare's traditional fee-for-service program. However, conventional wisdom among policymakers holds that Medigap coverage substantially raises Medicare claims costs. This report uses detailed diagnosis data provided by three large Medigap insurers, information from the Medicare Current Beneficiary Survey, and the Medicare 5 percent sample file to reexamine the impact of Medigap coverage on Medicare spending. We conclude that previous studies might have overestimated the impact of Medigap coverage on Medicare costs and that past projections of potential Medicare cost savings from restrictions on Medigap coverage probably are overstated.     

Who Switches from Medigap to Medicare HMOs?

OBJECTIVE: To determine the factors affecting whether Medigap owners switch to Medicare managed care plans. DATA SOURCES: The primary data were the 1993-1996 Medicare Current Beneficiary Survey (MCBS) Cost and Use Files. These were supplemented by data available from the Centers for Medicare & Medicaid Services (CMS) website. STUDY DESIGN: Individuals on the MCBS files with Medigap coverage in the period 1993-1996 were included in the study. The person-year was the unit of analysis. We used multivariate logistic regression analysis to determine whether or not a Medigap owner switched to a Medicare-managed care plan during a particular year. Independent variables included measures of affordability, need for services, health insurance benefits, sociodemographics, and supply of managed care plans. PRINCIPAL FINDINGS: We did not detect strong evidence that beneficiaries in poorer health were more likely than others to switch from Medigap coverage to Medicare-managed care. In addition, higher Medigap premiums did not appear to induce beneficiaries to switch into managed care. CONCLUSIONS: We examined selection bias in joining managed care plans among the subset of Medicare beneficiaries who have Medigap policies. No strong evidence of selection bias was found in this population. We conclude that there was no evidence that the Medigap market is becoming prohibitively expensive as a result of unfavorable selection.     

Will Choice‐Based Reform Work for Medicare? Evidence from the Federal Employees Health Benefits Program

OBJECTIVE:. To examine the effect of premiums and benefits on the health plan choices of older enrollees who choose Federal Employees Health Benefits Program (FEHBP) health plans as their primary payer. DATA SOURCES: Administrative enrollment data from the Office of Personnel Management (OPM) and plan premiums and benefits data taken from the Checkbook Guide to health plans. STUDY DESIGN: We estimate individual plan choice models where the choice of health plan is a function of out-of-pocket premium, actuarial value, plan attributes, and individual characteristics. Plan attributes include plan structure (fee-for-service/preferred provider organization, point-of-service, or health maintenance organization), drug benefit structure, and whether or not the plan covers other types of spending such as dental services and diabetic supplies. The models are estimated by conditional logit. Our study focuses on three populations that currently choose FEHBP as their primary health care coverage and are similar to the Medicare population: current employees and retirees who are approaching the age of Medicare eligibility (ages 60-64) and current federal employees age 65+. Current employees age 65+ are eligible for Medicare, but their FEHBP plan is their primary payer. Retirees and employees 60-64 are not yet eligible for Medicare but are similar in many respects to recently age-eligible Medicare beneficiaries. We also estimate our model for current employees age 55 and younger as a comparison group. DATA COLLECTION METHODS: We select a random sample of retirees and employees age 60-64, as well as all current employees age 65+, from the OPM administrative database for the calendar year 2001. The plan choices available to each person are determined by the plans participating in their metropolitan statistical area. We match plan premium and attribute information from the Checkbook Guide to each plan in the enrollee's list of choices. PRINCIPAL FINDINGS: We find that current workers 65+, 60-64, and non-Medicare eligible retirees are sensitive to variation in plan premiums. The premium elasticities for these groups are similar in magnitude to those of the age 55 and under employee group. Older workers and retirees not yet eligible for Medicare are willing to pay a substantial amount for plans with open provider networks. The willingness to pay for open networks is significantly greater for these groups than for younger employees. Willingness to pay for open network plans varies significantly by income, but varies little by age within group. CONCLUSIONS: Our finding that older workers and non-Medicare eligible retirees are sensitive to plan premiums suggests that choice-based reform of Medicare would lead to cost-conscious choices by Medicare beneficiaries. However, our finding that these groups are willing to pay more for open network plans than younger employees suggest that higher risk individuals may migrate toward higher benefit, higher cost plans. Our findings on the relationship between income and willingness to pay for open network plans suggest that means testing is a viable reform for lowering Medicare program costs.     

Physicians' charges under Medicare: assignment rates and beneficiary liability.

Under Medicare's Part B program, the physician decides whether to accept assignment of claims. When assignment is accepted, the physician agrees to accept as full payment Medicare's allowed charge. Physicians' acceptance of assignment is of considerable importance in relieving the beneficiaries of the burden of the costs of medical care services. This factor and the beneficiaries' liabilities for premiums, the annual deductible, and coinsurance are analyzed in considerable detail in this report. Data from physicians' claims for services in 1975 show that 45.8 percent of the services and 47.2 percent of the charges were assigned for the aged. There were wide variations in the rate of acceptance of assignment by physician specialty, and by age, race, and residence of beneficiaries. Total beneficiary liability from the deductible, coinsurance, and from unassigned claims amounted to 37.7 percent of total physicians' charges due. When the premium which the beneficiary pays for Part B is included, beneficiary liability rises to 69.2 percent of total physicians' charges due.     

Pricing behaviour of nonprofit insurers in a weakly competitive social health insurance market

In this paper we examine the pricing behaviour of nonprofit health insurers in the Dutch social health insurance market. Since for-profit insurers were not allowed in this market, potential spillover effects from the presence of for-profit insurers on the behaviour of nonprofit insurers were absent. Using a panel data set for all health insurers operating in the Dutch social health insurance market over the period 1996-2004, we estimate a premium model to determine which factors explain the price setting behaviour of nonprofit health insurers. We find that financial stability rather than profit maximisation offers the best explanation for health plan pricing behaviour. In the presence of weak price competition, health insurers did not set premiums to maximize profits. Nevertheless, our findings suggest that regulations on financial reserves are needed to restrict premiums.     

Helping consumers to select an appropriate long-term care insurance policy

Consumers who purchase long term care insurance policies can get good value for their money but there are several residual risks. Advisers have an important responsibility to make sure that their clients fully understand these risks. We recommend that consumers who are appropriate candidates for long term care insurance take into account the following guidelines: Make sure that a policy is bought from a well-known, financially secure company that has an A.M. Best Company rating of A or A+ or at least an A rating from Standard & Poor's. Avoid companies that have a history of consumer complaints, post-claims underwriting, high agent commissions, high lapse rates, or abuses in the Medigap market. Buy a policy with level premiums but understand that in the absence of explicit rate guarantees, premiums may be increased in the future. Seek policies that are guaranteed renewable, explicitly ensure fair access to policy upgrades, provide protection in case of late premium payments, and guarantee protection from potential changes in government benefits.     

Private health insurance plans in 1978 and 1979: a review of coverage, enrollment, and financial experience.

The private health insurance industry collected $55.9 billion in premiums in 1979 and returned $50.2 billion in benefits to its subscribers. Premiums rose 12.4 percent, slightly faster than in 1978 when premiums rose 11.4 percent, to $49.7 billion. Benefits rose 11.4 percent in 1979, down from the 12.6 rate in 1978. After operating expenses were deducted, the industry showed underwriting losses of $1.4 billion in 1979 and $1.5 billion in 1978. About 78 percent of the population was insured for hospital care, 76 percent for x-ray and laboratory examinations, and about 76 percent for surgical services in 1979. Smaller percentages had coverage for other types of care. An estimated 64 percent of the aged bought private hospital insurance, and about 43 percent bought surgical insurance, mostly to supplement Medicare benefits. An estimated 12 percent of persons under age 65 had no protection against the cost of hospital care either through private insurance or a public program such as Medicare or Medicaid.     

Ownership and average premiums for Medicare supplementary insurance policies

This article describes private supplementary health insurance holdings and average premiums paid by Medicare enrollees. Data were collected as part of the 1992 Medicare Current Beneficiary Survey (MCBS). Data show the number of persons with insurance and average premiums paid by type of insurance held--individually purchased policies, employer-sponsored policies, or both. Distributions are shown for a variety of demographic, socioeconomic, and health status variables. Primary findings include: Seventy-eight percent of Medicare beneficiaries have private supplementary insurance; 25 percent of those with private insurance hold more than one policy. The average premium paid for private insurance in 1992 was $914.     

A voluntary deductible in health insurance: the more years you opt for it,the lower your premium?

Adverse selection regarding a voluntary deductible (VD) in health insurance implies that insured only opt for a VD if they expect no (or few) healthcare expenses. This paper investigates two potential strategies to reduce adverse selection: (1) differentiating the premium to the duration of the contract for which the VD holds (ex-ante approach) and (2) differentiating the premium to the number of years for which insured have opted for a VD (ex-post approach). It can be hypothesized that premiums will decrease with the duration of the contract or the number of years for which insured have opted for a VD, providing an incentive to insured to opt for a deductible also in (incidental) years they expect relatively high expenses. To test this hypothesis, we examine which premium patterns would occur under these strategies using data on healthcare expenses and risk characteristics of over 750,000 insured from 6 years. Our results show that, under the assumptions made, only without risk equalization the premiums could decrease with the duration of the contract or the number of years for which insured have opted for a VD. With (sophisticated) risk equalization, decreasing premiums seem unfeasible, both under the ex-ante and ex-post approach. Given these findings, we are sceptical about the feasibility of these strategies to counteract adverse selection.     

Malpractice premiums and primary cesarean section rates in New York and Illinois

The fear of malpractice liability is mentioned frequently as a cause of increased cesarean section rates, but without quantitative investigations. This perception may be studied at an aggregate level by comparing malpractice insurance premiums, a proxy for liability risk, with primary cesarean section rates. Both New York and Illinois are divided into territories for insurance rates; the premium was uniform within each territory over the period studied for each specialty. Premiums for obstetricians were linked to birth and procedure data from New York and Illinois hospitals for 1981 and 1983, respectively, to determine whether there was a correlation between premium levels and the primary cesarean section rate. A statistically significant difference was found between mean cesarean rates by insurance premium territories in each State. A correlation was observed between increased insurance rates among territories and increased cesarean section rates. Based on these results, a substantial impact was found on delivery decisions resulting from the fear of malpractice suits.     

Adverse selection with a multiple choice among health insurance plans: a simulation analysis

This study uses simulation methods to quantify the effects of adverse selection. The data used to develop the model provide information about whether families can accurately forecast their risk and whether this forecast affects the purchase of insurance coverage--key conditions for adverse selection to matter. The results suggest that adverse selection is sufficient to eliminate high-option benefit plans in multiple choice markets if insurers charge a single, experience-rated premium. Adverse selection is substantially reduced if premiums are varied according to demographic factors. Adverse selection is also restricted in supplementary insurance markets. In this market, supplementary policies are underpriced because a part of the additional benefits that purchasers can expect is a cost to the base plan and is not reflected in the supplementary premium. As a result, full supplementary coverage is attractive to both low and high risks.     

Premium Variation in the Individual Health Insurance Market

Recent proposals to decrease the number of uninsured in the U.S. indicate that the individual health insurance market's role may increase. Amid fears of possible risk-segmentation in individual insurance, there exists limited information of the functioning of such markets. This paper examines the relationship between expected medical expense and actual paid premiums for households with individual insurance in the 1996–1997 Community Tracking Study's Household Survey. We find that premiums vary less than proportionately with expected expense and vary only with certain risk characteristics. We also explore how the relationship between risk and premiums is affected by local regulations and market characteristics. We find that premiums vary significantly less strongly with risk for persons insured by HMOs and in markets dominated by managed care insurers.     

Response to health insurance by previously uninsured rural children.

OBJECTIVE: To examine the healthcare utilization and costs of previously uninsured rural children. DATA SOURCES/STUDY SETTING: Four years of claims data from a school-based health insurance program located in the Mississippi Delta. All children who were not Medicaid-eligible or were uninsured, were eligible for limited benefits under the program. The 1987 National Medical Expenditure Survey (NMES) was used to compare utilization of services. STUDY DESIGN: The study represents a natural experiment in the provision of insurance benefits to a previously uninsured population. Premiums for the claims cost were set with little or no information on expected use of services. Claims from the insurer were used to form a panel data set. Mixed model logistic and linear regressions were estimated to determine the response to insurance for several categories of health services. PRINCIPAL FINDINGS: The use of services increased over time and approached the level of utilization in the NMES. Conditional medical expenditures also increased over time. Actuarial estimates of claims cost greatly exceeded actual claims cost. The provision of a limited medical, dental, and optical benefit package cost approximately $20-$24 per member per month in claims paid. CONCLUSIONS: An important uncertainty in providing health insurance to previously uninsured populations is whether a pent-up demand exists for health services. Evidence of a pent-up demand for medical services was not supported in this study of rural school-age children. States considering partnerships with private insurers to implement the State Children's Health Insurance Program could lower premium costs by assembling basic data on previously uninsured children.