Private Payers Serving Individuals with Disabilities and Chronic Conditions. D. Evidence of Systematic Selection of Plan Types


We examined the extent to which individuals with potentially disabling chronic conditions switched to and from managed care. Our goal was to determine whether there were differences between the observable characteristics of those who switched plan types ("switchers") and those who stayed with an insurance option ("stayers"). A finding of no differences across the groups in terms of observable patient characteristics may suggest that any differences in utilization and expenditures might be attributable to differences in the plans, rather than to differences in the enrollees themselves.

1. Employer A

The analytic sample used to examine switching behavior in Employer A was comprised of people having potentially disabling conditions in either 1994 or 1995. Only individuals who were members of the indemnity plan in 1994 were analyzed, because data for the POS option was substantially under-reported in this year. These individuals were categorized on the basis of whether they remained in the indemnity option in 1995 or switched to POS insurance. All sample members were required to have continuous enrollment over the period. The sample was further limited to employees only, since enrollment data was not available for spouses or dependents. The final sample consisted of 21,615 individuals:

  • 19,424 indemnity stayers(indemnity plan in 1994 and 1995), and
  • 2,191 indemnity switchers (indemnity plan in 1994, POS in 1995).

Table C-1 in Appendix C compares the demographic and health characteristics of individuals who switched from an indemnity health plan to a POS plan between 1994 and 1995 to those who stayed in the indemnity plan in both years. Switchers tended to be slightly younger, were more likely to be full-time employees, and were less likely to be early retirees. In addition, switchers were less likely to have a potentially disabling chronic condition in both 1994 and 1995. While 49 percent of the switcher group had a per se disabling physical condition in 1994, the corresponding figure for the stayer group was 54 percent. In 1995 the rates were somewhat higher but the differential remained: 53 percent for switchers and 62 percent for stayers. In 1994 a lower proportion of switchers than stayershad a potentially disabling mental condition or a combination of mentally and physically disabling conditions, although no differences in these measures were found in 1995. Despite their lower rates of disabling illness, switchers were more likely than stayers to use rehabilitation services in 1995.

As expected, healthier employees were more likely than others to switch to managed care insurance. The percentage of individuals with an activity-limiting condition (LaPlante, 1989) was lower among switchers, as were the mean number of MDCs for which enrollees were treated, in both years. Inpatient use and expenditure differences were found as well. A lower proportion of switchers than stayershad a hospitalization in both years, and among those who were hospitalized, median inpatient payments were lower for switchers.6 Mean outpatient visits, as measured by the number of separate days on which an outpatient claim was recorded, were slightly lower for switchers in 1994, as were median outpatient payments in both years. Among users of the prescription drug benefit, average use was lower in the switcher group in 1995.

Appendix C-2 compares these measures within each group across the two years. In both the stayer and switcher groups, physical health appears to have deteriorated through time. Figure 6-1 graphically depicts this decline in terms of the incidence of per se disabling physical conditions. Approximately 54 percent of stayers were diagnosed with such a condition in 1994. By 1995 this number had increased to approximately 62 percent. Although the incidence also increased among switchers, the difference between the two years was smaller (approximately 4 percentage points).

  FIGURE 6-1: Proportion of People Having a Per se Physically Disabled Condition, by Plan Status and Year, Employer A  
Bar chart.

The data show that switchers to the POS had lower service use and payments in the year before they switched, with one exception--the likelihood of using rehabilitation services. Stayers, but not switchers, were more likely to be hospitalized in 1995 than in 1994. Among switchers who had an admission, the mean number of admissions and mean length of stay per admission was slightly lower in the year before they switched plans than afterward. No differences in these inpatient measures were found across the years for stayers who were hospitalized.

Outpatient utilization and payments for both groups also increased from 1994 to 1995. Outpatient use and payments increased by a larger percentage over the two years for those that joined the POS plan. Switchers experienced a 29 percent increase in median payments, while stayers'payments rose 11 percent.

Figure 6-2 shows the relative rise in outpatient visits among indemnity plan switchers andstayers. Individuals who moved from indemnity insurance to managed care had an average of 10 outpatient visits in 1994. After the switch, they averaged 14 visits per year. In contrast, the increased visits for stayers over this period wasless than one visit per year.

  FIGURE 6-2: Mean Number of Outpatient Visits, by Plan Status and Year, Employer A  
Bar chart.

In sum, these statistics on plan switching suggest that those employees who chose to switch to the managed care option were healthier and consumed fewer health care services overall than those who remained in the indemnity plan. As expected, delivery of care in the outpatient setting was more heavily emphasized in the POS plan. Although switchers had lower outpatient payments than stayers in both years, they had a greater percentage increase in outpatient payments over the two years.

2. Employer B

The analytic file for Employer B was broader than that for Employer A. It contained employees, spouses and dependents continuously enrolled in some form of health insurance in 1994 and 1995. The 45,044 people in the final file were classified as follows:

  • 22,784 indemnity stayers(indemnity in both 1994 and 1995),
  • 332 indemnity switchers (indemnity 1994 and HMO 1995),
  • 21,618 HMO stayers(HMO in both 1994 and 1995), and
  • 310 HMO switchers (HMO 1994 and indemnity 1995).

Very few switchers to an HMO or to an indemnity plan had a hospitalization in either year. For this reason, inpatient utilization and payment information was not examined.

The demographic data displayed in Table C-3a of Appendix C shows that the people who switched from the indemnity plan to the HMO were younger on average and more likely to be employed full-time. Those families that switched plans were also more likely to have a dependent with a per se condition, rather than a spouse or an employee with such a condition.

In both years, the percentage of adults with a per se physical or an activity-limiting condition was higher among those who remained in the indemnity plan. This suggests that those who switched to the HMO option were relatively healthier. Outpatient measures support this contention. In particular, those who switched to the HMO had fewer outpatient visits and lower median outpatient payments in both years.

Table C-3b of Appendix C compares those who stay in the HMO to those who switched from the HMO to the indemnity plan. By several measures we find that people switching to the indemnity plan were less healthy and had higher expenditures than were those who stayed in the HMO. A greater percentage of switchers had a per sephysical or mental condition in 1995. While only 28 percent of the people who stayed in the HMO had an activity-limiting condition in 1995, 38 percent of the switchers were classified with such a condition. The mean number of outpatient visits was higher in 1995 for the switchers than for the stayers. The likelihood of rehabilitation service use was also higher for this group in 1995, although no significant differences in outpatient visits or rehabilitation service use were found for 1994. These higher utilization patterns translated into higher payments. Median total payments in 1995 were over $500 higher for the switchers than they were for those that stayed in the HMO.

Table C-4a in Appendix C compares these measures within each group across the two years. As with Employer A, the incidence of potentially disabling physical conditions increased slightly for both groups from 1994 to 1995. Among those switching to an HMO, median total payments were approximately $1,000 lower in 1995 than in 1994. It may be that this reduction reflects lower inpatient use, since the difference in median outpatient payments across the two years was statistically insignificant. No difference in median total payments across the two years was found for those that remained in the indemnity plan. However, mean total payments and median outpatient payments were lower by approximately $40.

Table C-4b in Appendix C reports differences between these measures in 1994 and 1995 for the group that stayed in the HMO and the group that switched to the indemnity plan. Consistent with our other findings, the percentage of individuals with a per se condition increased in both groups through time.

The mean number of outpatient visits and median outpatient payments also increased significantly in both groups across the years. However, the magnitudes of these increases were greater for those that switched to the indemnity plan. Figure 6-3 depicts the differences in median outpatient payments across years. These results suggest that individuals choose more generous health plans when they know they will need more care.

  FIGURE 6-3: Median Outpatient Payments, by Plan Status and Year, Employer B  
Bar chart.

As with Employer A, we found that plan switching behavior in Employer B supports the notion that healthier people are more likely to belong to managed care plans. Among those belonging to the indemnity plan in 1994, people who switched to an HMO were healthier than those that stayed. Switchers also had lower median total payments in 1995 than in 1994. Of those who belonged to an HMO in 1994, stayers were healthier than switchers. Those who switched to the indemnity plan experienced much higher median total payments in 1995 than in 1994, suggesting that higher expected payments may be associated with indemnity enrollment rather than HMO enrollment.

While those moving to an HMO had lower expected expenditures than those who stayed in the indemnity plan, the difference in expenditures could have been caused by greater efficiency in the HMO. In order to disentangle these two possibilities--efficiency in providing care versus healthier members--one would need to compare use and payments through time controlling for changes in individual characteristics and plan enrollment. The small number of switchers in both employers precluded an analysis of this type. The next best approach is to compare use and payments across those in the different plan types, controlling for differences in enrollee characteristics that may systematically influence these health care outcomes. The remainder of this chapter takes this approach using the method described in the previous section.

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