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CHAPTER 2. HEALTH PLAN CHOICE 75
Another useful feature of the data is that we observe each employer during their
first year of participation in the program. Insurers have little information on firm
characteristics beyond that provided by the intermediary during the first year, allow-
ing us to observe how plans bid when they have similar information on the likely risk of
a group. 11 On the demand side, a large literature documents that health plan choices
are highly persistent (e.g., ?), so observing choice behavior in the first year likely
provides a good indication of steady-state demand and allows us to observe the plan
characteristics and prices at the time of initial choice. The data’s main limitations are
the fairly small number of observations and restricted set of employee characteristics
relative to, say, the HR records of a large employer, and also the aggregated reporting
of realized costs.
The 11 firms have 2,044 covered employees and 4,652 enrollees (employees and
their dependents). We observe five of the employers for two years, creating a total of
3,683 employee-years and 6,603 enrollee-years. Table 2.1 provides summary statistics
on the covered employees, the enrollees, and the firms. Sixty-two percent of employees
are female; the average age is just over forty. Fifty-eight percent of enrollees are female
and enrollees are younger on average than employees, driven primarily by covered
children. Twenty-eight percent of employees enroll in a plan that covers their spouse
and 27 percent enroll in a plan that covers at least one child.
Table 2.1 also presents risk scores at the employee, enrollee, and employer lev-
els. A score of one represents an average individual in a nationally representative
sample, and a score of two indicates that an individual’s expected health costs are
twice the average. The average risk scores of employees and enrollees are 1.25 and
1.01, respectively. The difference reflects the lower expected expenditures for covered
children. Average risk ranges widely across employers, from 0.63 to 1.91. One reason
for the degree of variation is the small number of enrollees at some of the firms in our
data. This variation plays a key role in our analysis. We use information on insurer
bids and realized costs to estimate models of the relationship between costs and risk.
11 In a few cases, an employer had a prior contract with one of the insurers. We have examined
whether incorporating this into our employee demand model affects our estimates and found it did
not. One concern is that this situation could result in asymmetric information between the plans in
the bidding, but we think this is unlikely to be an important problem.