SELECTION AND RISK ADJUSTMENT IN PRIVATE EMPLOYER PLANS

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Description: This project takes advantage of a natural experiment in choice of plan for employees of the Ford Motor Company. In the first two years they have no choice of plan, but in the third, they can chose their plan. This allows the research team to examine the effects of plan and of adverse selection in terms of utilization and costs. The only difference between the subjects before and after is the intervention, and the effects of aging one year. A further bonus is that encounter data from managed care plans is available to augment data from claims based systems. The same method for imputing costs - using indemnity plan unit prices - will be used for all plans. This analysis can be conducted for spouses and dependents as well as for employees. The study will employ change scores as a function of patient characteristics and an indicator for switching. Hierarchical methods can be used to nest individuals within families, possibly using two-part models. The before-and-after difference for those who switched and those who stayed yield estimates of the plan + adverse selection effect and the plan effect directly. Analysis by service (MH vs. other) will provide information on differential selection and responsiveness. In the second sub-project, they will simulate the distributional consequences of alternative risk adjustment methods (PIP-DCGs and HCCs) using Ford and Harvard employee. data. Using the simulations and information on other compensation, they can assess the magnitude of any redistribution, as well as saying who would be affected. The underlying modeling methods will be the same as that in Keeler, Carter and Newhouse (JHE 1998).