Selection stories: understanding movement across health plans

Area of Science:

• Health Economics
• Insurance Markets
• Public Policy

Background:

• Understanding factors influencing health plan enrollment is crucial for market stability.
• Cost-related transitions, including adverse selection, adverse retention, and aging in place, affect health insurance markets.
• Equilibrium enrollments can be distorted by these transition dynamics.

Purpose of the Study:

• To assess the key factors driving individual movement across health plans.
• To quantify the impact of adverse selection, adverse retention, and aging in place on health insurance markets.
• To analyze how premium adjustments influence enrollment based on these cost-related transitions.

Main Methods:

• Utilized data from the Group Insurance Commission in Massachusetts.
• Distinguished and analyzed three types of cost-related transitions: adverse selection, adverse retention, and aging in place.
• Examined the quantitative importance of these factors on equilibrium enrollments.

Main Results:

• Adverse selection, where less healthy individuals move to more generous plans, was found to be quantitatively important.
• Aging in place, characterized by enrollment inertia and increasing plan costs over time for older enrollees, was also significant.
• Both adverse selection and aging in place can materially impact equilibrium enrollments.

Conclusions:

• Adverse selection and aging in place are significant drivers of health plan transitions.
• These factors have a substantial effect on market equilibrium, especially when premiums reflect associated costs.
• Policy and market designs must account for these behavioral and demographic influences on health plan choice.