Death Spiral or Euthanasia? The Demise of Generous Group Health Insurance Coverage
26 Pages Posted: 18 May 2004 Last revised: 6 Aug 2022
Date Written: May 2004
Abstract
Employers must determine which sorts of healthcare insurance plans to offer employees and also set employee premiums for each plan provided. Depending on how they structure the premiums that employees pay across different healthcare insurance plans, plan sponsors alter the incentives to choose one plan over another. If employees know they differ by risk level but premiums do not fully reflect these risk differences, this can give rise to a so-called "death spiral" due to adverse selection. In this paper use longitudinal information from a natural experiment in the management of health benefits for a large employer to explore the impact of moving from a fixed dollar contribution policy to a risk-adjusted employer contribution policy. Our results suggest that implementing a significant risk adjustment had no discernable effect on adverse selection against the most generous indemnity insurance policy. This stands in stark contrast to previous studies, which have tended to find large impacts. Further analysis suggests that previous studies which appeared to detect plans in the throes of a death spiral, may instead have been experiencing an inexorable movement away from a non-preferred product, one that would have been inefficient for almost all workers even in the absence of adverse selection.
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Paying for Health Insurance: The Tradeoff between Competition and Adverse Selection
By David M. Cutler and Sarah Reber
-
By Sherry Glied
-
Learning and the Value of Information: Evidence from Health Plan Report Cards
By Michael Chernew, Gautam Gowrisankaran, ...
-
Learning and the Value of Information: The Case of Health Plan Report Cards
By Michael Chernew, Gautam Gowrisankaran, ...
-
Measuring Adverse Selection in Managed Health Care
By Richard G. Frank, Jacob Glazer, ...
-
Insurance or Self-Insurance?: Variation, Persistence, and Individual Health Accounts
By Matthew J. Eichner, Mark B. Mcclellan, ...