The health plan choices of retirees under managed competition.
OBJECTIVE
To investigate the effect of price on the health insurance decisions of Medicare-eligible retirees in a managed competition setting.


METHODS
The study is based on four years of administrative data from the University of California (UC) Retiree Health Benefits Program, which closely resembles the managed competition model upon which several leading Medicare reform proposals are based.


METHODS
A change in UC's premium contribution policy between 1993 and 1994 created a unique natural experiment for investigating the effect of price on retirees' health insurance decisions. This study consists of two related analyses. First, I estimate the effect of changes in out-of-pocket premiums between 1993 and 1994 on the decision to switch plans during open enrollment. Second, using data from 1993 to 1996, I examine the extent to which rising premiums for fee-for-service Medigap coverage increased HMO enrollment among Medicare-eligible UC retirees.


RESULTS
Price is a significant factor affecting the health plan decisions of Medicare-eligible UC retirees. However, these retirees are substantially less price sensitive than active UC employees and the non-elderly in other similar programs. This result is likely attributable to higher nonpecuniary switching costs facing older individuals.


CONCLUSIONS
Although it is not clear exactly how price sensitive enrollees must be in order to generate price competition among health plans, the behavioral differences between retirees and active employees suggest that caution should be taken in extrapolating from research on the non-elderly to the Medicare program.
Buchmueller
T C
TC
Graduate School of Management, University of California, Irvine 92697, USA.
D000368:Aged; D002140:California; D002755:Choice Behavior; D003256:Community Participation / Q000191:economics* / Q000706:statistics & numerical data; D016536:Competitive Medical Plans / Q000191:economics* / Q000706:statistics & numerical data; D017047:Cost Sharing / Q000706:statistics & numerical data; D018588:Fee-for-Service Plans / Q000191:economics / Q000706:statistics & numerical data*; D005249:Fees and Charges; D005260:Female; D005382:Financing, Personal / Q000706:statistics & numerical data*; D006264:Health Benefit Plans, Employee / Q000191:economics*; D006279:Health Maintenance Organizations / Q000191:economics / Q000706:statistics & numerical data*; D006302:Health Services Research; D006801:Humans; D017054:Insurance, Medigap / Q000191:economics; D008297:Male; D008389:Marketing of Health Services; D006278:Medicare / Q000191:economics; D017059:Models, Econometric; D012179:Retirement / Q000191:economics* / Q000523:psychology; D014481:United States; D014495:Universities