Selection and Plan Switching Behavior

Abstract

A majority of employees can choose among health insurance plans of varying generosity. They may switch plans if prices, information, or their health status change. We analyze switching behavior presumptively caused by changes in health status. We show that switchers to a less generous plan have lower medical spending prior to the switch than the average for the generous plan in which they started, while switchers to a more generous plan appear to anticipate higher spending that they delay until after the switch. This transfer of costs from a less to a more generous plan increases the burden of adverse selection. Our data suggest that switching may be more important to the level of premiums than previously documented.

Keywords: Adverse Selection, Managed Care

JEL Classification: I11