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Health Care Costs and Financing

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Large firms are more likely to offer health insurance plans with high quality ratings

More than 90 percent of privately insured individuals obtain their health insurance from their employer or as dependents of a family member with employer-sponsored health insurance. The good news is that large firms are more likely to offer health insurance plans with quality that is highly rated. This suggests that employers may be internalizing the preferences of their employees. It also refutes critics who say employers only care about low premiums, conclude the authors of a study that was supported in part by the Agency for Healthcare Research and Quality (HS10771).

To shed some light on the relationship between health plan performance and the plans offered by employers, the researchers combined data on HMO health plan offerings in 2000 by metropolitan statistical area (MSA) for 17 large employers with data on plan price and performance (based on the Health Plan Employer Data Information Set, HEDIS, and the Consumer Assessment of Health Plans Study (CAHPS®). Better CAHPS® and HEDIS performance were associated with greater market share. For example, a one standard deviation increase in the CAHPS® ratings was associated with a 4.69 percentage point increase in market share.

The study was not designed to uncover whether employers were acting because of pressure from labor markets to offer plans with good performance or a correlation between plan performance and unobserved plan traits, such as provider networks. Employers were less likely to offer plans with high prices. They were more likely to offer plans that were more established, non-profit, and affiliated with national chains. In general, they also were more likely to offer network model plans and plans with relatively few Medicaid enrollees.

See "Quality and employers' choice of health plans," by Michael Chernew, Gautam Gowrisankaran, Catherine McLaughlin, and Teresa Gibson, in the May 2004 Journal of Health Economics 23, pp. 471-492.

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