Risk selection of families electing HMO membership

Abstract

This study analyzes the health plan selection history of approximately 30,000 employees of a large aerospace corporation. The data show that families selecting HMOs were younger, had lower income, and had less time on the job. HMOs attracted families with lower annual claimed expenditures, and these families' claimed expenses were lower still in the year immediately prior to switching into the HMO. Lower costs among families switching into the HMOs are partly explained by the composition of these families compared with families who stayed in the FFS plan. However, the selection pattern persisted even after adjusting for the size of the family, the age and sex of family members, and other family characteristics, such as race and income. Families switching out of HMOs had higher total annual claims during their first year back in the FFS sector compared with families about to switch into HMOs. However, recent HMO exiters did not always differ from families who never left the FFS plan.