This project will examine how competition influences the determination of health plan premiums. Currently, health plan premiums are set in a variety of ways: community rating, experience rating, competitive bidding, negotiated rate setting, and government formulas. Premiums are also influenced by factors such as whether the employer pays a fixed amount or a fixed proportion toward each plan, the number of plans offered, exit and entry of health plans, and the market share of HMOs. This project will attempt to identify the rate setting mechanisms and market structures where competition seems to work well.
The specific aims of the project are to answer the following questions: (1) Do employers offering a large number of health plans experience lower or higher premiums and rates of premium growth than employers offering fewer health plans? (2) Do employers with high proportion of their employees in HMOs and PPO enrollment have lower or higher premiums and rates of premium growth than employers with low proportion of such enrollment? (3) Do market areas with high proportion of HMO and PPO enrollment have lower or higher premiums and rates of premium growth than region with low proportion of HMO and PPO enrollment? (4) What is the empirical evidence concerning the importance of having the employer pay a fixed amount toward each plan versus a fixed proportion of each plan? (5) What characteristics of state and private employer negotiations over and bidding for premiums have resulted in the lowest levels and slowest rates of growth of health premiums? (6) What market structures and health plan characteristics have been most closely associated with biased selection and premium """"""""death spirals?"""""""" (7) What is the empirical evidence about pricing strategies of health plans? (8) How does the number of health plans competing for a single group of employees affect the outcome? (9) What are the patterns of market exit and entry by health plans? These questions will be answered using primarily empirical analysis. The characteristics of health plans, employers, and health care market structures will be related to health care premium levels and rates of growth of health plan premiums. The analysis will have three parts. First, a meta-analysis of studies of biased selection literature will be conducted. Second, state employee health plans will be surveyed and the premium and enrollment data used for multivariate statistical analysis. Third, HMO enrollments by county will be related to premium data collected from the state employers and used to assess how the HMO market characteristics affect the setting of premiums for state employees.
