Employee premiums, availability of alternative plans, and HMO disenrollment

The notion that greater competition among health plans helps contain health-care costs presumes that consumers respond to economic incentives. This article tests that proposition through an examination of the factors that cause individuals to disenroll from health maintenance organizations (HMOs). The study relies upon a multivariate probit model of disenrollment behavior, estimated with data on 1,553 subscribers in three Minneapolis-St. Paul HMOs in 1984. The results indicate that disenrollments are a function largely of economic factors; disenrollments rise significantly with increases both in relative premiums and in the number of plan choices available to consumers. To illustrate, a +5.00 increase in the employee's monthly premium for one HMO, relative to the average change in the employees' premiums for all other available plans, would lead to a two thirds increase in that HMO's disenrollment rate.