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CHAPTER 2. HEALTH PLAN CHOICE 95 to interpret this is that, in our sample, a social planner could achieve approximately 70% of the potential welfare gains associated with individualized pricing using only observable information on risk. Social Welfare without Risk-Rating The calculations above indicate that the observed prices fall well short of the efficient benchmark. A natural question is whether efficiency gains could be realized even without risk-rated contributions. That is, to the extent re-allocating high and low risk households would increase social welfare, is it possible to induce this reallocation given current institutional pricing constraints? At first glance, the answer is unclear. After all, current institutions require uniform pricing within firm-tiers, but this still allows a fair amount of pricing flexibility within our sample. For example, average risk varies substantially across the firms in our data, suggesting that cross-firm vari- ation in contribution policies could alleviate some of the inefficiency associated with uniform contributions. The next scenario in Table 2.6 addresses the question of what is possible without individualized pricing by considering contributions that maximize social welfare subject to being uniform within each firm-tier. As in the case of fully risk-rated prices, optimizing uniform within firm contributions leads to a reallocation of high- risk households into the integrated plans and away from the network plans, particu- larly the PPO. The shift is much less dramatic, however, than under full risk rating. Overall social surplus is $1.40-6.70 higher per enrollee-month than under the observed policies, but still $3.60-20.40 below the efficient level. This indicates that about 3/4 of the observed inefficiency is due to the requirement of nondiscriminatory pricing within firms. Nevertheless, it appears that employers could increase social surplus by around 1-3% of average insurer costs simply by adjusting their contributions to better reflect differences in underlying plan costs. One difficulty for employers, of course, is that matching contributions to plan costs may be a fairly complex exercise. Many benefits consultants, including the intermediary in our data, suggest a simpler approach, which is to pass on the full incremental premium for all but the lowest priced plan. We refer to this as the
CHAPTER 2. HEALTH PLAN CHOICE 96 “Enthoven Rule”(?). About 1/2 of the firms in our sample use this approach for at least some workers. The last entry in Table 2.6 considers the effect of moving all the firms to an Enthoven-style approach. Perhaps surprisingly, this has relatively little effect on overall welfare, or on household choices. The reason is that demand is not very price elastic and from a practical standpoint most firms already pass through a substantial fraction of the premium differentials. So relative to the price changes needed to move substantial numbers of households across plans, a change to an Enthoven policy has only a modest effect on choices. This last observation raises an important point for our pricing experiments. The relatively low elasticity of demand means that the contribution differentials needed to re-allocate households in the direction of efficiency are sizeable. For instance, maximizing welfare while keeping contributions uniform within firm-tiers would lead to some households seeing a $87 per-enrollee monthly premium for the network PPO relative to the integrated HMO. A move to efficient risk-rated prices would increase this differential even more for some high-cost households. For instance, an individual employee with a risk score of 3 would face a monthly premium differential of between $101 and $202 depending on our cost extrapolation. These large price differentials indicate that achieving efficient allocations may raise issues of fairness or affordability of coverage for particular subgroups. 2.5.3 The Value of Plan Choice By choosing to offer benefits through the intermediary, each of the firms in our sample moved from offering a single health plan to offering multiple plans from two carri- ers. A clear benefit of plan choice is that households with different preferences can select their preferred plan. Our estimates indicate a substantial amount of preference heterogeneity, and hence suggest substantial welfare gains from giving households multiple plan options. To illustrate this, Table 2.8 compares aggregate surplus under the observed of- ferings to the surplus that would be obtained if all the households in our sample were enrolled in one of the four plans. The most natural benchmark is the integrated
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ESSAYS IN PUBLIC FINANCE AND INDUST
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I certify that I have read this dis
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insurance choice. Among other thing
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Acknowledgements I am deeply thankf
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Contents Preface iv Acknowledgement
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2.5.3 The Value of Plan Choice ....
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List of Tables 1.1 Asset Exemption
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4.9 First Week Contract Spending fo
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4.3 I.T. Contracting by Week ......
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CHAPTER 1. BANKRUPTCY 2 of the dead
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CHAPTER 1. BANKRUPTCY 4 relevant le
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CHAPTER 1. BANKRUPTCY 6 superficial
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CHAPTER 1. BANKRUPTCY 8 After treat
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CHAPTER 1. BANKRUPTCY 12 newly edit
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CHAPTER 1. BANKRUPTCY 15 bound of t
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CHAPTER 1. BANKRUPTCY 20 or coverag
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CHAPTER 1. BANKRUPTCY 22 homestead
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CHAPTER 1. BANKRUPTCY 24 log seizab
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CHAPTER 1. BANKRUPTCY 26 on the bas
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CHAPTER 1. BANKRUPTCY 28 to seizabl
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CHAPTER 1. BANKRUPTCY 31 CARA utili
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CHAPTER 1. BANKRUPTCY 33 Puzzle 3:
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CHAPTER 1. BANKRUPTCY 35 of income
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CHAPTER 1. BANKRUPTCY 40 TaxSim pro
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Payments CHAPTER 1. BANKRUPTCY 42 $
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Page 136 and 137: CHAPTER 3. MEDIGAP 119 be of intere
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Page 140 and 141: CHAPTER 3. MEDIGAP 123 have benefit
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Page 149 and 150: CHAPTER 3. MEDIGAP 132 policy that
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Page 153 and 154: CHAPTER 3. MEDIGAP 136 3.6.3 Robust
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CHAPTER 3. MEDIGAP 146 Table 3.6: S
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CHAPTER 3. MEDIGAP 148 Table 3.8: R
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CHAPTER 3. MEDIGAP 150 Table 3.10:
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CHAPTER 3. MEDIGAP 152 Table 3.12:
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CHAPTER 4. YEAR-END SPENDING 154 bu
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CHAPTER 4. YEAR-END SPENDING 156 in
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CHAPTER 4. YEAR-END SPENDING 159 To
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CHAPTER 4. YEAR-END SPENDING 163 4.
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CHAPTER 4. YEAR-END SPENDING 172 To
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CHAPTER 4. YEAR-END SPENDING 175 0.
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CHAPTER 4. YEAR-END SPENDING 179 to
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CHAPTER 4. YEAR-END SPENDING 183 Fi
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CHAPTER 4. YEAR-END SPENDING 187 Ta
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