The health plan choices of retirees under managed competition.

OBJECTIVE: To investigate the effect of price on the health insurance decisions of Medicare-eligible retirees in a managed competition setting. DATA SOURCE: The study is based on four years of administrative data from the University of California (UC) Retiree Health Benefits Program, which closely resembles the managed competition model upon which several leading Medicare reform proposals are based. STUDY DESIGN: A change in UC's premium contribution policy between 1993 and 1994 created a unique natural experiment for investigating the effect of price on retirees' health insurance decisions. This study consists of two related analyses. First, I estimate the effect of changes in out-of-pocket premiums between 1993 and 1994 on the decision to switch plans during open enrollment. Second, using data from 1993 to 1996, I examine the extent to which rising premiums for fee-for-service Medigap coverage increased HMO enrollment among Medicare-eligible UC retirees. PRINCIPLE FINDINGS: Price is a significant factor affecting the health plan decisions of Medicare-eligible UC retirees. However, these retirees are substantially less price sensitive than active UC employees and the non-elderly in other similar programs. This result is likely attributable to higher nonpecuniary switching costs facing older individuals. CONCLUSIONS: Although it is not clear exactly how price sensitive enrollees must be in order to generate price competition among health plans, the behavioral differences between retirees and active employees suggest that caution should be taken in extrapolating from research on the non-elderly to the Medicare program.

Medicaid and crowding out of private insurance: a re-examination using firm level data.

While previous research has identified a relationship between expanded Medicaid eligibility and falling private health insurance coverage, the exact mechanism by which this "crowding out" occurs is largely unexplained. We combine individual and firm-level data to investigate possible responses to the Medicaid expansions by firms and workers. We find no evidence that the expansions affected employer offers of insurance to workers. However, we find some evidence of an effect on the probability that a firm offers family coverage, and on the percentage of full-time workers accepting employer-sponsored coverage offered to them.

Drug use, drug abuse, and labour market outcomes.

This paper examines the relationship between illicit drug use and labour market success, and in doing so addresses two shortcomings of the previous literature. First, unlike many previous analyses, ours accounts for differences in intensity of use using clinically based diagnostic measures. Second, while recent studies focus only on young adults, we analyze a prime-age (30-45-year-olds) sample as well. Our results indicate that these differences are important. Similar to previous studies, we find evidence of a positive relationship between drug use and income for young workers. However, we also find some evidence of lower incomes for young workers reporting daily use of illicit drugs. For prime-age men, we find strong evidence that problematic drug use (as indicated by either a diagnosis of pathological use or dependence or by daily use) is negatively related to income. We also find a negative relationship between problematic use and employment among prime-age, but not younger, men.

Does a fixed-dollar premium contribution lower spending?

In a multiple-option health benefits program, the employer's premium contribution determines the incentives facing employees and participating health plans. Advocates of managed contribution argue that a fixed-dollar contribution policy will result in lower health spending by encouraging cost-conscious choices by employees and price competition among plans. The University of California (UC), which adopted a fixed-dollar contribution policy in 1994, provides a useful case study for assessing this claim. This DataWatch documents the effect of this policy on health maintenance organization (HMO) premiums and per employee health spending in the UC health benefits program.

Small group reform in a competitive managed care market: the case of California, 1993 to 1995.

State-level insurance reforms designed to make health insurance more accessible for small businesses and their employees have become common in the 1990s. This study examines the effects of small group reform legislation enacted in California in 1993. Using survey data on health benefits in small firms, we look at changes in health insurance coverage that occurred between spring 1993 (just before reform) and spring 1995. Our results indicate that insurance became slightly more affordable and, among businesses with three to nine employees, employer provision increased more than 10 percentage points. Provision was unchanged among larger-sized businesses, however. Managed care penetration increased considerably. We argue that California's competitive health insurance market, which already was dominated by managed care, represented a favorable environment for small group reform. In this context, the modest growth in insurance provision highlights the limited potential of incremental reforms for expanding insurance coverage.

Managed competition in California's small-group insurance market.

This paper describes the early experience of the Health Insurance Plan of California (the HIPC), a small-employer purchasing cooperative established in 1993. The plan's experience is consistent with the predictions of advocates of market-oriented health care reform: The program's design has encouraged cost-conscious choice by enrollees, which in turn has generated price competition among plans. Differences across the HIPC's six rating regions conform with the notion that health care competition is less viable is sparsely populated areas. Evidence on risk selection suggests that while the HIPC as a whole has not experienced adverse selection, certain plans within the program have received a disproportionate share of high-cost enrollees.

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.

Consumers' sensitivity to health plan premiums: evidence from a natural experiment in California.

A recent policy change by the University of California (UC) provides a unique natural experiment for investigating how consumers respond to financial incentives when choosing health plans. In 1994 UC went from a premium contribution policy that subsidized more costly plans to a policy of contributing a constant dollar amount. As a result, employee premium contributions increased for roughly one-third of university employees. The response to this change in relative prices was strong. Whereas only 5 percent of employees facing constant premium contributions switched plans, roughly one-quarter of those facing premium contribution increases of less than $10 per month switched to lower-cost plans. Higher price increases led to even greater rates of plan switching.

Marital status, spousal coverage, and the gender gap in employer-sponsored health insurance.

Not only do men who work full time earn more than women, but they are more likely to receive employer-sponsored health benefits. This paper provides evidence on the gender gap in employer-sponsored health insurance. The results indicate that the gap is driven largely by the tendency of married women to decline employer-sponsored insurance in favor of being covered through their husbands. Indeed, among single workers, women are more likely than men to be offered insurance. These findings call into question the conclusion made by previous researchers that employers discriminate against women in the provision of health insurance.

Hospital community benefits other than charity care: implications for tax exemption and public policy.

Recent policy initiatives attempt to link the tax treatment of nonprofit hospitals more closely with the provision of social benefits. A key issue in defining these benefits is the treatment of "community benefit" programs and services. While their costs are often unreimbursed, these programs differ from traditional charity care in terms of the populations whom they benefit and the motivation for their provision. Community benefit programs are typically targeted to the general population, rather than the poor or other underserved groups, and often serve a marketing function.

Health risk and access to employer-provided health insurance.

The attractiveness of a job offering health benefits increases with a worker's expected medical expenditures. At the same time, employers have an incentive to screen out high-risk workers. Evidence from the 1984 Survey of Income and Program Participation indicates that employer screening dominates high-risk workers' desire to select jobs that offer insurance. Workers who describe their health as fair or poor, report difficulty with physical tasks, or have a work-related disability are less likely to receive employer-provided health insurance than healthy workers. Part of this effect is explained by the negative impact of poor health on earnings and labor supply.