Paul J. Feldstein

Switching costs, price sensitivity and health plan choice

We investigate the extent to which sensitivity to health plan premiums differs across individuals according to characteristics related to the cost of switching plans. Our results indicate substantial variation in price sensitivity related to expected health care costs: younger, healthier employees are between two and four times more sensitive to price than employees who are older and who have been recently hospitalized or diagnosed with cancer. We also find evidence of status quo bias: estimated premium elasticities are significantly higher for new hires than for incumbent employees. Simulations combining our results with actuarial data illustrate the cost implications of risk-related differences in price elasticity.

The effect of price on switching among health plans

A recent policy change by the University of California (UC) provides a unique natural experiment for investigating the sensitivity of consumers to health plan premiums. When the UC moved to a policy of limiting its contribution to the cost of the least expensive plan, out-of-pocket premiums increased for roughly one-third of UC employees. We examine the extent to which UC employees switched plans in response to this change in premiums. Our results indicate a strong response. Individuals facing premium increases of less than

Private cost containment. The effects of utilization review programs on health care use and expenditures.

10 were roughly 5 times as likely to switch plans as those whose premiums remained constant.

Does utilization review reduce unnecessary hospital care and contain costs

Utilization review has been regarded as one of the most promising approaches to the containment of health care costs. We analyzed insurance claims data on 222 groups of employees and dependents for 1984 and 1985 to evaluate the effects of utilization review programs instituted by a large private insurance carrier. The utilization review programs we studied were compulsory; patients who did not follow established utilization review procedures were subject to financial penalties. Controlling for employee characteristics, health care market area factors, and benefit-plan features, we found that utilization review reduced admissions by 12.3 percent, inpatient days by 8.0 percent, hospital expenditures by 11.9 percent, and total medical expenditures by 8.3 percent. When only groups that had relatively high admission rates before adopting utilization review were analyzed, it was found that they had a 34 percent reduction in patient days and a 30 percent reduction in hospital expenditures. The savings-to-cost ratio of utilization review for groups overall was highly favorable--approximately 8 to 1. Private utilization review programs of the type we studied appear to be effective in reducing hospital use and decreasing medical expenditures. This study did not address the possible effects of such programs on the health status of patients.

Analysis of private health insurance premium growth rates: 1985-1992.

Research indicates that approximately one in five hospital admissions is unnecessary or inappropriate, based on accepted clinical criteria. Various costcontainment approaches have been initiated to reduce unnecessary hospital care. Among these approaches, hospital utilization review (UR) has shown promise as a cost-containment strategy. Although third party payers are increasingly relying on UR and similar approaches to contain health care expenditures, little is known about the effects of these efforts. This study analyzes insurance claims data on 223 insured groups for 1984 through 1986 to determine the effects of a UR program instituted by a commercial insurance company. It was found that UR had a significant negative effect on both utilization and expenditures, even after controlling for a large number of factors. Specifically, UR reduced admissions by 13%, inpatient days by 11%, expenditures on routine hospital inpatient services by 7%, expenditures on hospital ancillary services by 9%, and total medical expenditures by 6%. Even though UR reduced the level of utilization and expenditures, it did not appear to influence the rate of change in these areas over time. These findings suggest that hospital UR programs can reduce utilization and expenditures and generate cost savings, thereby helping to improve the efficiency of medical care resources consumption.

Health care factors related to stage at diagnosis and survival among medicare patients with colorectal cancer

The rate of increase in health care expenditures has been a central policy concern for well over a decade, yet little empirical research has been conducted to examine expenditure growth rates. This study analyzed health insurance premium growth rates for a selected sample of 95 insured groups over the period 1985 to 1992. During this time, premiums increased by approximately 150% in nominal terms and by 45% in real terms. The observed rate of growth was not constant over time, however. The most rapid growth occurred during the years 1986 to 1989; thereafter, the rate of increase in premiums declined. Multivariate analysis was conducted to assess the effects on premium growth rates of selected variables representing insurance benefit design features, market competitive factors, insurance system factors, and group-specific factors. In addition to the percentage increase in benefit payments, other factors found to affect premium growth rates were health maintenance organization market penetration, deductible level, the coinsurance rate, and state insurance mandates. Further, this analysis suggests that the insurance underwriting cycle may play an important role in influencing insurance premium growth rates. These results support the belief that health maintenance organization induced competition has potential to control the rate of increase in health care costs.

Breast cancer outcomes among older women: HMO, fee-for-service, and delivery system comparisons

Background. With the growth in enrollment of Medicare patients in HMOs the effectiveness of care received by Medicare/HMO patients continues to be of concern. By considering the relationship of insurance to stage at diagnosis, this study inquires whether HMOs emphasize early diagnosis of colorectal cancer to a greater extent than FFS plans, if particular HMO types (group/nongroup models) are more successful in doing so, and how this pertains to survival. Methods. Data for 1329 Medicare patients with colorectal cancer, diagnosed 1987 to 1993, and residing in northern California, were acquired from a population-based cancer registry. Insurance included two types of Medicare HMOs (group and nongroup model) and three fee-for-service (FFS) categories: Medicare with private supplement, Medicare/Medicaid, and Medicare only. The relationships of insurance to AJCC stage at diagnosis and of insurance to survival following diagnosis were examined, respectively, with logistic regression models and survival analysis (controlling for age, ethnicity, tumor location, educational level, sex, and hospital type). Results. Likelihood of early stage colorectal cancer was greater for Medicare patients in nongroup model HMOs or having private FFS supplements than for those in group model HMOs, Medicare/Medicaid, or Medicare alone. All-cause and colorectal cancer mortality did not differ significantly among Medicare patients with group model HMO, nongroup model HMO and private FFS supplements. Medicare/Medicaid patients experienced significantly greater all-cause mortality than private FFS patients. Conclusions. Differences within this study population in early stage diagnosis of colorectal cancer and breast cancer, respectively, by type of Medicare supplemental insurance may be attributable to which preventive screening measures are included in health plan report cards.

Congressional voting behavior on hospital legislation: an exploratory study.

OBJECTIVE: To analyze the relationship of health insurance status and delivery systems to breast cancer outcomes — stage at diagnosis, treatment selected, survival — focusing on comparisons among women aged 65 or more having Medicare alone, Medicare/Medicaid, or Medicare with group model HMO, non-group model HMO, or private fee-for-service (FFS) supplement.DESIGN: Retrospectively defined cohort from Sacramento, Calif, regional cancer registry.SETTING: Thirteen-county region in northern California with mature managed care market.PATIENTS: Female invasive breast cancer patients aged 65 or more (N=1,146), diagnosed 1987–1993.MEASUREMENTS AND MAIN RESULTS: Health insurance was determined from hospital records. Outcomes were analyzed with multivariate regression models, controlling for age, ethnicity, time, and SES measures. Stage I diagnosis was more likely among group model HMO patients than among private FFS insured (odds ratio [OR], 1.42; 95% confidence interval [CI], 0.84 to 2.40). Stage I tumors were significantly less likely for Medicaid patients (OR, 0.50; 95% CI, 0.31 to 0.82). Use of breast-conserving surgery plus radiation (BCS+) varied significantly by hospital type (including HMO-owned and various-sized community hospitals) and time. Survival of patients with private FFS, group-, and non-group model HMO insurance was not significantly different, but was for those with Medicaid or Medicare alone.CONCLUSIONS: This study sheds new light on the relationship of insurance to stage and survival among older breast cancer patients, highlighting the importance of distinguishing types of HMOs and types of FFS plans. These outcomes do not differ significantly between women with Medicare who are in HMOs and those with private FFS supplemental insurance. However, patients with Medicare/Medicaid or Medicare alone are at risk for poorer outcomes.

Have hospital inpatient cost containment programs contributed to the growth in outpatient expenditures? Analysis of the substitution effect associated with hospital utilization review.

This paper analyzes Congressional voting behavior on the Gephardt Amendment to President Carters hospital cost containment legislation. The impact of opposing interest groups is examined: on one side were hospital and medical interest groups; on the other was the Carter Administration and its political party, as well as states with large Medicaid expenditures. The effect of political contributions from MEDPACs is evaluated, and the relative importance of various factors affecting the votes outcome is analyzed.

Breast cancer outcomes among older women

The rapid increase in outpatient expenditures has been the focus of growing attention in recent years. This increase has corresponded with public and private efforts to contain hospital inpatient costs, prompting some analysts to suggest that outpatient expenditure growth is the result of a substitution effect; that is, the substitution of outpatient for inpatient care associated with hospital cost containment programs. Claims data on 43 privately insured groups that adopted utilization review (UR) during the latter part of 1984 or early 1985 were analyzed, comparing outpatient expenditures before and after adoption of hospital inpatient UR to quantify the substitution effect associated with UR. UR was not associated with higher physician office expenditures nor with higher outpatient diagnostic expenditures. UR was related to significantly higher hospital outpatient department expenditures. On average, these expenditures were approximately 20% higher (P = 0.01) after the adoption of UR. However, outpatient department expenditures of the groups analyzed represented a fairly small percentage of total medical expenditures; hence, the absolute expenditure increase was quite modest, on the order of