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Updated: Jul 29, 2026
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Measuring the Subjective Value of Risky and Ambiguous Options using Experimental Economics and Functional MRI Methods
Published on: September 19, 2012
A demand-side view of risk adjustment
R Feldman1, B E Dowd, M Maciejewski
1Division of Health Services Research and Policy, School of Public Health, University of Minnesota, Minneapolis, MN 55455, USA.
Summary
Employers subsidize high-cost health plans to ensure efficient allocation and support high-risk workers. This demand-side risk adjustment improves consumer choice and plan efficiency, mimicking formal risk adjustment benefits.
Area of Science:
- Health economics
- Public health policy
- Consumer behavior
Background:
- Employers offering multiple health plans face challenges in efficient consumer allocation.
- High-cost health plans are often underutilized by high-risk individuals without subsidies.
- Existing risk adjustment mechanisms may not fully address these allocation inefficiencies.
Purpose of the Study:
- To analyze the efficiency of consumer allocation to health plans.
- To investigate why employers subsidize high-cost health plans.
- To examine employer premium subsidies as a form of demand-side risk adjustment.
Main Methods:
- Estimation of an employer premium subsidy model.
- Utilized data from a 1994 survey of large public employers.
- Empirical analysis of the relationship between subsidy and risk adjustment benefits.
Main Results:
- Employers are more likely to subsidize high-cost plans when the benefits of risk adjustment are greater.
- The findings indicate that premium subsidies can partially achieve the goals of formal risk adjustment.
- Employer contributions to high-cost plans correlate with the potential efficiency gains from risk adjustment.
Conclusions:
- Employer subsidies for high-cost health plans serve as an effective demand-side risk adjustment mechanism.
- These subsidies improve the efficient allocation of consumers to health plans.
- The study suggests that premium subsidies can mitigate inefficiencies caused by asymmetric information and risk preferences in health insurance markets.
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