Employment and Health Benefits A Connection at Risk (1993) / Chapter Skim
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5 RISK SELECTION, RISK SHARING, AND POLICY
5 RISK SELECTION, RISK SHARING, AND POLICY
Pages 167-201
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From page 167... ...
In addition, risk selection can lead health plans to compete for lowercost enrollees and to avoid higher-cost individuals because the price and profit advantages from such tactics can outweigh the gains to be achieved by cost-effective management of health care and administrative services. Health care costs are highly skewed in their distribution.
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From page 168... ...
when individuals or groups that purchase health coverage differ from nonpurchasers in their likelihood of incurring health care expenses or (2) when those who enroll in competing health plans differ in the level of risk they present to specific plans.
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From page 169... ...
payments to health plans.) The policy problem with risk selection is not that it can put adversely affected health plans out of business.
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From page 170... ...
Individual Factors and children) ; Individuals' choices about health plans are affected by a variety of characteristics that may not be easy to measure directly but that are correlated to more easily measured characteristics, such as age, gender, occupation, and income.
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From page 171... ...
As noted earlier, the major factor affecting risk selection for larger employers is the offering to employees of a choice of health plans (Luft, 1991~. A multiple-choice health benefit program allows the individual risk factors identified above to operate within the employment group.
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From page 172... ...
These include underwriting and pricing practices; plan benefit design; incentives for use of a network of practitioners and providers; administrative procedures; marketing strategies; and general reputation. As discussed below, health plans can manipulate their features and practices to varying degrees.
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From page 173... ...
. A health plan that does not use medical underwriting makes itself vulnerable to unfavorable risk selection if its competitors do engage in risk .
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From page 174... ...
As defined in Chapter 3, conventional health plans place no or few limits on choice of provider, whereas network plans (e.g., HMOs, preferred provider organizations [PPOs] , and point-of-service [POS]
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From page 175... ...
A Case in Point To illuminate the impact of individual, employer, and health plan factors, the experience of the Federal Employees Health Benefits Program (FEHBP) , the oldest consumer-choice employer health program in the country, is instructive (Towers, Perrin, Forster & Crosby, Inc., 1988; CRS, 1989; Enthoven, 1989; Jones, 1989; U.S.
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From page 176... ...
, and all are moving to incorporate more managed care features. Such correspondence reduces the differences in health plans that might attract or deflect high-risk individuals and encourage fre
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From page 177... ...
First, risk selection is not confined to one type of health plan or benefit design. Both indemnity health plans and HMOs have been found to suffer from unfavorable selection.
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From page 178... ...
(The literature does not mention an equivalent use of durational rating to lower rates for high-risk groups.) In contrast, in the large-group market In which employers offer multiple health plans, the effects of regression toward the mean may be offset by continued risk selection at each year's open enrollment.
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From page 179... ...
In another university health plan, 0.4 percent of the Blue Cross enrollees filing claims accounted for 21 percent of reimbursements (Luft et al., 1985~. How these individuals choose among health plans can have a marked effect on a plan's costs.5 Such selection is not easy to predict using the usual demographic measures of risk.
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From page 180... ...
not all people need, want, or can afford as much medical care and coverage as most health plans now provide and (2) those individuals should have the opportunity to contract for a lower level of benefit or standard of care in return for a lower premium (Havighurst, 1991~.
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From page 181... ...
The principle here is that the risk of medical care expenses should be shared very broadly and that broad risk sharing across a community can help keep rates within reach of both higher-risk and modest-income individuals. Because most people move from lower-risk to higher-risk status over time, community rating achieves a rough actuarial fairness if the time perspective is long enough.8 However, because lowincome, low-risk individuals will find it difficult to divert income from food and shelter to health insurance whether or not their premiums are risk rated, subsidies will still be required to make insurance broadly available across income classes.
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From page 182... ...
First, to the extent that fear of unfavorable risk selection leads insurers to refuse coverage in whole or part-to higher-risk individuals, those individuals may face barriers in obtaining needed health care. Second, if health plans fear that covering, providing, or improving specific services will attract higher risks, they may limit coverage of those services even more than they might simply in pursuit of cost containment.
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From page 183... ...
On the other hand, decreasing the incentive for health plans to compete on the basis of risk selection should encourage competition based on efficient management and other practices, and such competition could limit the overall cost of health benefits. In any case, lack of health coverage does not inevitably mean complete lack of health care, although it is associated with lower use of both outpatient and inpatient services (Davis and Rowland, 1983; Lewin/ICF, 1990; Hadley et al., 1991; Stern et al., 1991~.
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From page 184... ...
4~. To the extent that fear of risk selection discourages health plans from covering certain kinds of appropriate medical services or deters more effective and efficient management of health services, it may diminish the quality of health care.
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From page 185... ...
In addition, employers may not deny all coverage under a health benefit plan for an individual with disabilities. However, the act explicitly permits most health insurance underwriting practices based on or consistent with state law unless such practices are a "subterfuge" for discrimination.
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From page 186... ...
. Many uncertainties about the applicability of the law to health benefits will probably be resolved through litigation (Council on Ethical and Judicial Affairs, 1991; Feldblum, 1991; Juengst, 1991; Rothstein, 1992~.
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From page 187... ...
. The second option, which would eliminate risk selection among health plans by eliminating choice among health plans, is noted here but not discussed at length because it is more politically than technically challenging.
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From page 188... ...
manipulate or regulate the terms of health plan competition to limit the number of health plans, standardize benefit packages, create purchasing arrangements, and control other factors that may lead to adverse selection in a competitive market; (3) adjust employers' or governments' (but not individuals')
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From page 189... ...
As noted earlier, most small-group reforms would probably increase premiums for many employer groups now judged to be low risk according to current underwriting practices (GAO, l991d; Hall, 1992~. These groups would move from narrow low-risk pools to broader and more costly risk pools.
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From page 190... ...
Another response is to mandate coverage. Such a policy would necessarily eliminate risk selection as it arises from the decisions of groups or individuals to purchase or not purchase insurance but would not affect selection effects related to choices among health plans.
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From page 191... ...
Replacement and consolidation strategies have been criticized for restricting employee choice among health plans and potentially discouraging innovation. In addition, if an employer becomes dissatisfied with the POS plan or the "umbrella" carrier for dual- or triple-option programs and switches to another plan or carrier, the switch may disrupt patient-physician relationships and interfere with continuity of care.
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From page 192... ...
Purchasing cooperatives would consolidate the role of purchasing agent for small employers and would operate somewhat like large employers now do when they screen, select, and monitor a choice of health plans for their employees. They could also administer a policy of risk adjusting employer (or employer and government' contributions to health plans.
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From page 193... ...
However, the strategic use of benefit design to attract good risks and discourage bad risks appears to be so appealing that it will if not limited-almost cer tainly undermine other steps to control risk selection and limit the advantages to be gained from such control. Monitoring health plan enrollment, disenrollment, and marketing strategies has been tried in the Medicare program to control abuses that might arise as the government encouraged beneficiaries to enroll in HMOs.
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From page 194... ...
Another issue is how vulnerable the protections offered by such a body would be to changing partisan tides regarding regulation and deregulation. Risk Adjusting Payments to Health Plans Fundamental to a number of proposals for health care reform, especially those based on "managed competition," are methods to adjust how employers, governments, purchasing cooperatives, or other entities pay health plans based on the risk presented by their enrollees.
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From page 195... ...
misreporting health status) ; feasible to administer for many types of employers and health plans (e.g., HMOs, fee-for-service plans, and large and small groups)
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From page 196... ...
Techniques for Risk Adjusting Payments to Health Plans Assessments of risk adjustment techniques involve both policy and technical challenges (Welch, 1985; Newhouse et al., 1989; Anderson et al., 1990; Anderson, l991b; Bowen and Slavin, 1991; Luft, 1991; Robinson et al., 19911. The policy challenge is to determine whether adjusting government or employer contributions for a particular individual risk factor (e.g., use of over $50,000 in medical services)
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From page 197... ...
Second, they may reflect individual tastes for consumption of health services. Third, honey may reflect individual decisions to defer or advance medical care in conjunction with a planned switch in health plans.
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From page 198... ...
One problem is that health status measures generally involve data not easily available to those who would use them to risk adjust contributions to health plans. They require either direct access to medical records, direct questioning of individuals about their perceptions, activities of daily living, and other matters, or both.
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From page 199... ...
Reinsuring, Allocating, and Pooling High Risk Individuals Many advocates of underwriting reforms, risk-adjusted premiums, and managed competition concede that very high risk or high cost individuals may pose adverse selection problems beyond the reach of their approaches (Blue Cross and Blue Shield Association, l 991 a; HIAA, l 991 a; National Association of Insurance Commissioners, 1991~. Thus, they have offered several strategies for spreading risk for these individuals, including · reinsurance mechanisms to cover all or a portion of medical care expenses above a certain level for individuals or entire groups; · assignment of high-risk individuals or groups to individual insurers on an unbiased basis; · grouping of high-risk individuals in a single "pool" subsidized by contributions from private insurers, taxpayers, or others; and · channeling of high-risk individuals to case management programs.
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From page 200... ...
Another question is whether high-risk pools or other options would encourage continuity of care and effective management of high-risk individuals by mainstream health plans. Would they instead segregate these individuals in plans that are ill-equipped to provide state-of-the-art management of complex and difficult medical problems?
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From page 201... ...
narrowing or eliminating differences in individual or group premiums based on age, gender, health status, or other risk factors, (2) limiting health plan discretion in benefit design, regulating marketing practices, and otherwise closely managing the terms of competition among health plans, (3)
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