How does the employer contribution for the federal employees health benefits program influence plan selection?

Market reform of health insurance is proposed to increase coverage and reduce growth in spending by providing an incentive to choose low-cost plans. However, having a choice of plans could result in risk segmentation. Risk-adjusted payments have been proposed to address risk segmentation but are criticized as ineffective. An alternative to risk adjustment is to subsidize premiums, as in the Federal Employees Health Benefits Program (FEHBP). Subsidizing premiums may also increase total premium spending. We find that there is little risk segmentation in the FEHBP and that reducing the premium subsidy would lower government premium spending and slightly increase risk segmentation.     

Market incentives, plan choice, and price increases

The Federal Employees Health Benefits Program (FEHBP) has attracted considerable interest for its ability to control health care costs. We examine the impact of the FEHBP's maximum dollar contribution on incentives to select low-cost plans and the growth in insurance premiums over time. Unless the maximum dollar contribution is pegged to a low-price plan, few enrollees select such plans. Moreover, premiums rise at least five percentage points per year faster among plans below this fixed subsidy level than they do in plans above it. Our results have important implications for the design of similar market-based approaches.     

The impact of premium subsidies on health plan choices in Switzerland: Who responds to the incentives set by in-kind as opposed to cash transfers?

Mandatory health insurance in Switzerland operates on a community-based premium scheme. This can lead to a high financial burden on lower income individuals. Until 2014, premium subsidies were paid as cash transfer or in-kind transfer, providing different incentives to individuals for choosing their health plans. Using a difference-in-differences strategy, the impact of in-kind subsidy transfers on deductible choice and the choice of a cost-saving health plan was evaluated to understand effect heterogeneity based on individual background characteristics. The results indicate that eligible individuals from in-kind transfer cantons in general are incentivized to choose a low deductible plan compared to eligible individuals from cash transfer cantons. This effect is found strongest among female, middle-aged and healthy individuals who have most flexibility in adjusting their health plan choices in response to the financial incentives. Additionally, eligible individuals are less likely to choose a cost-saving health plan compared to a cash transfer canton.     

Determinants of the use of health plan information in formulating health plan selection decisions

This study seeks to identify the impact of information on employees' health plan selection decision-making. Surveys were administered to 1,722 Federal employees working in the Department of Health and Human Services (DHHS) enrolled in the Federal Employees Health Benefits Program (FEHBP). This study focuses on the enrollees' access to and use of three types of health plan information: print information issued by the Federal government (in particular, The Guide to Federal Employees Health Benefit Plans), print information issued by the health plans, and web-based information. Literature from health plans was utilized to a greater degree than The Guide. Web-based information was the least accessed and used. Major positive predictors of the use of health plan information from any source were: race, time in Federal employment, whether the employee was considering a plan change, employees with less time in current plan, employees who search for information to make decisions, and spouses' health status. Younger and more-educated employees were more likely to access web-based information. Implications for management, policy, and future research are discussed.     

Determinants of the Use of Health Plan Information in Formulating Health Plan Selection Decisions

Abstract

This study seeks to identify the impact of information on employees' health plan selection decision-making. Surveys were administered to 1,722 Federal employees working in the Department of Health and Human Services (DHHS) enrolled in the Federal Employees Health Benefits Program (FEHBP). This study focuses on the enrollees' access to and use of three types of health plan information: print information issued by the Federal government (in particular, The Guide to Federal Employees Health Benefit Plans), print information issued by the health plans, and web-based information. Literature from health plans was utilized to a greater degree than The Guide. Web-based information was the least accessed and used. Major positive predictors of the use of health plan information from any source were: race, time in Federal employment, whether the employee was considering a plan change, employees with less time in current plan, employees who search for information to make decisions, and spouses' health status. Younger and more-educated employees were more likely to access web-based information. Implications for management, policy, and future research are discussed.     

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.     

Simulating the effects of employer contributions on adverse selection and health plan choice.

OBJECTIVE: To investigate the effect of employer contribution policy and adverse selection on employees' health plan choices. STUDY DESIGN: Microsimulation methods to predict employees' choices between two health plan options and to track changes in those choices over time. The simulation predicts choice given premiums, healthcare spending by enrollees in each plan, and premiums for the next period. DATA SOURCES: The simulation model is based on behavioral relationships originally estimated from the RAND Health Insurance Experiment (HIE). The model has been updated and recalibrated. The data processed in the simulation are from the 1993 Current Population Employee Benefits Supplement sample. PRINCIPAL FINDINGS: A higher fraction of employees choose a high-cost, high-benefit plan if employers contribute a proportional share of the premium or adjust their contribution for risk selection than if employees pay the full cost difference out-of-pocket. When employees pay the full cost difference, the extent of adverse selection can be substantial, which leads to a collapse in the market for the high-cost plan. CONCLUSIONS: Adverse selection can undermine the managed competition strategy, indicating the importance of good risk adjusters. A fixed employer contribution policy can encourage selection of more efficient plans. Ironically, however, it can also further adverse selection in the absence of risk adjusters.     

A comprehensive snapshot of States' small group market reforms on insurer pricing & rating practices, 1999

This paper presents a qualitative analysis of states' small group health insurance reforms that impact small group premiums, mostly enacted by the states during 1996-99, following the federal Health Insurance Portability and Accountability Act in 1996. It draws from an intensive review of statutes of 48 states and the District of Columbia as of 1999. It analyses regulations related to insurer pricing and rating practices concerning rating criteria and rating bands, pricing incentives, premium stability from year to year, minimum loss rations, reinsurance and carve-out coverage for the medically uninsurable. It also covers regulations targeting employer purchasing and coverage practices such as pooled purchasing and adverse selection. This is the second of a two-part series analyzing states' small group market reforms, the first being devoted to state reforms to promote access and improving the value of health plans offered in this market (Xirasagar et al. 2004). The variety in pricing and rating reforms illustrate the differences in the depth of reforms across states, and represent a far wider range of potential actuarial combinations than the sample of reforms documented in past literature.     

Run for cover now or later? The impact of premiums, threats and deadlines on private health insurance in Australia

Between 1997 and 2000 the Australian government introduced three policy reforms that aimed to increase private health insurance coverage and reduce public hospital demand. The first provided income-based tax incentives; the second gave an across-the-board 30% premium subsidy; and the third introduced selective age-based premium increases for those enrolling after a deadline. Together the reforms increased enrolment by 50% and reduced the average age of enrollees. The deadline appeared to induce consumers to enroll now rather than delay. We estimate a model of individual insurance decisions and examine the effects of the reforms on the age and income distribution of those with private cover. We interpret the major driver of the increased enrollment as a response to a deadline and an advertising blitz, rather than a pure price response.      

The effect of premiums on the decision to participate in health insurance and other fringe benefits offered by the employer: evidence from a real-world experiment

In this paper, we investigate the effect of the out-of-pocket premium on the decision to enroll in employer health insurance and other benefits plans including dental insurance, vision care, long-term care insurance, and wellness benefits. Previous estimates of the effects of premium on takeup of health insurance could be biased toward zero due to a correlation between premium and unobservable demand or plan quality. We solve this problem using data representing hypothetical choices by employees under three different price regimes, providing price variation uncorrelated with either individual-specific or plan-specific unobservables. We find that workers are insensitive to price in health insurance takeup. Workers show much greater price sensitivity to decisions about dental insurance, vision plans, long-term care insurance, and wellness benefits. We conclude that premium subsidies are unlikely to have a substantial impact on increasing insurance rates of workers already offered employer insurance.     

Corporate benefit policies and health insurance costs

We tested the hypothesis that health insurance premium costs per employee are lower for employee groups where multiple health plans are offered and the employer pays a level dollar amount of the chosen premium than for employee groups where these two conditions are not met. Proposed national legislation relies on these conditions to create a competitive health care market. Data on 56 employee groups in 1981 and 66 employee groups in 1982 were collected from two surveys of large employers in Minnesota. Regression analysis of premium data from both surveys rejected the hypothesis. Indemnity plans in multiplan groups were cheaper if the employer paid a level dollar contribution versus a level percent (including 100) contribution. However, groups offered only an indemnity plan had lower premiums than groups meeting the two legislative conditions. These findings apply to both individual and family coverage premiums and are not caused by systematic differences in benefit provisions, employee demographics or factors influencing loading charges. Our findings cast doubt on attempts to achieve health care competition by legislative changes in insurance options and contribution methods.     

Employer Health Insurance Offerings and Employee Enrollment Decisions

Objective. To determine how the characteristics of the health benefits offered by employers affect worker insurance coverage decisions.
Data Sources. The 1996–1997 and the 1998–1999 rounds of the nationally representative Community Tracking Study Household Survey.
Study Design. We use multinomial logistic regression to analyze the choice between own-employer coverage, alternative source coverage, and no coverage among employees offered health insurance by their employer. The key explanatory variables are the types of health plans offered and the net premium offered. The models include controls for personal, health plan, and job characteristics.
Principal Findings. When an employer offers only a health maintenance organization married employees are more likely to decline coverage from their employer and take-up another offer (odds ratio (OR)=1.27, p <.001), while singles are more likely to accept the coverage offered by their employer and less likely to be uninsured (OR=0.650, p <.001). Higher net premiums increase the odds of declining the coverage offered by an employer and remaining uninsured for both married (OR=1.023, p <.01) and single (OR=1.035, p <.001) workers.
Conclusions. The type of health plan coverage an employer offers affects whether its employees take-up insurance, but has a smaller effect on overall coverage rates for workers and their families because of the availability of alternative sources of coverage. Relative to offering only a non-HMO plan, employers offering only an HMO may reduce take-up among those with alternative sources of coverage, but increase take-up among those who would otherwise go uninsured. By modeling the possibility of take-up through the health insurance offers from the employer of the spouse, the decline in coverage rates from higher net premiums is less than previous estimates.     

The effect of price on switching among health plans

A recent policy change by the University of California (UC) provides a unique natural experiment for investigating the sensitivity of consumers to health plan premiums. When the UC moved to a policy of limiting its contribution to the cost of the least expensive plan, out-of-pocket premiums increased for roughly one-third of UC employees. We examine the extent to which UC employees switched plans in response to this change in premiums. Our results indicate a strong response. Individuals facing premium increases of less than $10 were roughly 5 times as likely to switch plans as those whose premiums remained constant.     

Stability in the Federal Employees Health Benefits Program

Recently the Federal Employees Health Benefits Program has been the subject of much discussion in Washington as a result of the rather large premium increases in 1982 and 1983, the delayed open season of 1981, and the benefit reductions. Enrollees responded in May 1982 to the changes; a record number switched plans. It appears that enrollees were simply responding to the new premiums and benefits. In this paper we describe the economic incentives faced by enrollees in the FEHBP. We find that, due to the strong incentives for enrollees to leave certain high-cost plans, continued instability should be expected. In fact, the disparity between expected benefits and premium is so great for some plans (e.g. the Blue Cross high-option) that their survival is questionable. This lack of stability raises important questions about the viability of some pro-competition proposals involving multiple-insurer systems.     

An efficient employer strategy for dealing with adverse selection in multiple-plan offerings: an MSA example

This paper outlines a feasible employee premium contribution policy, which would reduce the inefficiency associated with adverse selection when a limited coverage insurance policy is offered alongside a more generous policy. The "efficient premium contribution" is defined and is shown to lead to an efficient allocation across plans of persons who differ by risk, but it may also redistribute against higher risks. A simulation of the additional option of a catastrophic health plan (CHP) accompanied by a medical savings account (MSA) is presented. The efficiency gains from adding the MSA/catastrophic health insurance plan (CHP) option are positive but small, and the adverse consequences for high risks under an efficient employee premium are also small.     

Plan choice,health insurance cost and premium sharing

We develop a model of premium sharing for firms that offer multiple insurance plans. We assume that firms offer one low quality plan and one high quality plan. Under the assumption of wage rigidities we found that the employee's contribution to each plan is an increasing function of that plan's premium. The effect of the other plan's premium is ambiguous. We test our hypothesis using data from the Employer Health Benefit Survey. Restricting the analysis to firms that offer both HMO and PPO plans, we measure the amount of the premium passed on to employees in response to a change in both premiums. We find evidence of large and positive effects of the increase in the plan's premium on the amount of the premium passed on to employees. The effect of the alternative plan's premium is negative but statistically significant only for the PPO plans.     

The price of cost-effectiveness thresholds under therapeutic competition in pharmaceutical markets

Health systems around world are increasingly adopting cost-effectiveness (CE) analysis to inform decisions about access and reimbursement. We study how CE thresholds imposed by a health plan for granting reimbursement affect drug producers’ pricing incentives and patients’ access to new drugs. Analysing a sequential pricing game between an incumbent drug producer and a potential entrant with a new drug, we show that CE thresholds may have adverse effects for payers and patients. A stricter CE threshold may induce the incumbent to switch pricing strategy from entry accommodation to entry deterrence, limiting patients’ access to the new drug. Otherwise, irrespective of whether entry is deterred or accommodated, a stricter CE threshold is never pro-competitive and may in fact facilitate a collusive outcome with higher prices of both drugs. Compared to a laissez-faire policy, the use of CE thresholds when an incumbent monopolist is challenged by therapeutic substitutes can only increase the surplus of a health plan if it leads to entry deterrence. In this case the price reduction by the incumbent necessary to deter entry outweighs the health loss to patients who do not get access to the new drug.     

Issues regarding health plan payments under Medicare and recommendations for reform.

The failures of the market for current Medicare health plans include poor information and price distortions and can be attributed to government policy. Reforms that could improve its structure are annual open enrollment periods, premium rebates from health management organizations (HMOs) to members, and termination of the federal government's subsidy of Medicare supplementary insurance. However, the price for a basic Medicare benefits package would still be distorted because Medicare bases its contribution on the cost of a comparable package in the fee-for-service (FFS) sector rather than on the cost of the most efficient plan available to beneficiaries in each market area. The present Medicare HMO program almost certainly increases total Medicare costs and actually discourages HMO growth by shielding beneficiaries from the true price difference between basic benefits in the HMO and FFS sectors. Lacking payment reforms, the Medicare HMO program should be terminated.     

Pricing health benefits: a cost-minimization approach

We study the role of health benefits in an employer's compensation strategy, given the overall goal of minimizing total compensation cost (wages plus health-insurance cost). When employees' health status is private information, the employer's basic benefit package consists of a base wage and a moderate health plan, with a generous plan available for an additional charge. We show that in setting the charge for the generous plan, a cost-minimizing employer should act as a monopolist who sells "health plan upgrades" to its workers, and we discuss ways tax policy can encourage efficiency under cost-minimization and alternative pricing rules.