The 131st Annual Meeting (November 15-19, 2003) of APHA

Abstract #68788

Adam J. Atherly, PhD, Curtis Florence, PhD, and Kenneth Thorpe, PhD. Health Policy and Management, Emory University, 1518 Clifton Rd. NE, Atlanta, GA 30084, 404-727-1175, aatherl@sph.emory.edu

Research Objective: This purpose of this study is to understand Medicare eligible members of the Federal Employees Health Benefit program (FEHB) choice of secondary insurance. FEHB is the largest employment based health insurance program and has often been touted as a model for Medicare reform. For FEHB to work as a reform model, members must both be able to distinguish between plans and be sensitive to premium variation. Population and Study Design: The population is FEHB members enrolled in Medicare. These enrollees receive primary insurance through Medicare, however Medicare has substantial coverage limitations. FEHB offers retirees a variety of supplemental options in both the managed care and fee-for-service (FFS) sectors. Thesse plans exhibit substantial variation in premiums and benefits. Individual plan choices for 28,721 individuals were examined in the year 2000. Models were estimated using a conditional-logit choice model. Key variables included plan attributes (premium and benefits) plus interactions between plan attributes and individual characteristics (particularly age, gender, income). Principal Findings: Medicare enrollees were relatively price sensitive, with an estimated premium elasticity of –3.02 (p<.001). Plan members preferred plans with actuarially superior benefits and better drug coverage; plan members were 25.3% more likely to join plans paying more than two-thirds of expected drug expenditures. Similarly, enrollees strongly preferred FFS plans. Interactions of age and plan characteristics found that older members were significantly more likely to pick plans with better drug benefits (p<.001) and FFS plans (p<.001). Higher income plan members were also more likely to pick plans with better drug benefits and in the FFS sector. Conclusions: Plan members were premium sensitive and gravitated toward plans that offered more generous supplemental benefits and lower premiums. However, the market does segment based on age and income. This implies that plans that offer better benefits, such as prescription drug coverage, are likely to have older enrollees. Also, higher income plan members were able to select offerings with better drug benefits and in the FFS sector. In the debate over restructuring Medicare, this analysis finds support for both advocates and opponents of competitive models. The premium and benefit sensitivity suggests that consumers will act to discipline health plans, as hoped by advocates of a competitive model. However, competitive reform may lead to market segmentation, with wealthier Medicare beneficiaries in the FFS sector and less wealthy beneficiaries in managed care. Also, “adverse selection” may cause plans difficulty in offering some needed benefits.

Learning Objectives:

• To understand the likely effects of Medicare reform on Medicare enrollees and program financing

Keywords: Medicare, Health Insurance

Presenting author's disclosure statement:
I do not have any significant financial interest/arrangement or affiliation with any organization/institution whose products or services are being discussed in this session.