Biased selection in Twin Cities health plans.

The data in Tables 1 through 4 show significant differences in the enrollment of higher health-related financial risk individuals and their families among health plans. FFS enrollees are older and exhibit more chronic illness on average. IPAs enroll a greater proportion of females than do PGP or FFS plans. PGPs and IPAs do not differ significantly in the age and chronic illness of their enrollees, but IPAs enroll a significantly greater proportion of females than do PGPs. The age difference between FFS and prepaid plans appears to be greater for long-term enrollees. The same pattern is true of chronic illness, but the results are often not statistically significant. We do not have time-series data, however, and cannot conclude that future comparisons among long-term enrollees will remains as they are now. In any care our data do not support the hypothesis that biased selection is a short-term problem that will be corrected as the population in prepaid plans ages. Our data contain a cross-section of environments for health plans in firms: long- and short-term offerings, long- and short-term enrollees, high and low out-of-pocket premium costs, etc. Our strongest results are the simplest: across all plans and environments there are significant differences in enrollee characteristics. These differences would not be inefficient if all groups paid actuarially fair premiums. However, mandatory offering and community-rating allow prepaid plans to enroll a younger population with less chronic illness and to maintain an information asymmetry that prevents employers and employees from determining--either prior to or following enrollment--the relationship of the prepaid plan's premium to its marginal cost.