Employees’ choice of health benefits and its effect on utilization and third-party payments

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  • March 21, 2019
Creator
  • Melton, Larry D.
    • Affiliation: Gillings School of Global Public Health, Department of Health Policy and Management
Abstract
  • Despite the popularity of Preferred-Provider Organizations (PPOs) in the employer-sponsored market, it is still unclear from the literature whether the adoption of the PPO cost-containment design is able to reduce employer coverage costs and efficiently manage employees' health services utilization relative to other plan designs. The objective of this research is to examine the effect of three PPO benefit designs on health services use and third-party payments compared to an Indemnity design, controlling for non-random selection. A by product of examining benefit design is observing predictors of health plan selection. All four plans in this study offered the exact same provider network and only differed in their out-of-pocket (OOP) cost-sharing requirements. To address the potential bias resulting from the endogenous health insurance choice, a two-stage residual inclusion equation is applied which allows for a consistent estimate of the effect of the PPOs. Of the four plans available, the PPO Standard was the most frequently selected plan (60%), followed by the PPO Plus (14%), PPO Basic (4%), and Indemnity (12%). Regression results showed the PPOs with the highest-cost sharing requirements, Standard ($3,032) and Basic ($2,862), had lower predicted total third-party payments than the Indemnity ($3,955) plan (p<0.05). The differences in the PPOs' predicted total third-party payments compared to the Indemnity's payment total was consistent across family health statuses and dependent coverage type. Also, inpatient and office utilization totals were greater in the Plus and Indemnity plans compared to the Basic and Standard plans' utilization totals (p<0.05). The Basic and Standard plans' effect on third-party payments demonstrates that the higher cost-sharing PPOs are likely to produce more employer cost savings than an Indemnity plan with similarly high, cost-sharing requirements. The higher utilization totals in the low cost-sharing plans, and the lower utilization totals in the high cost-sharing plans, suggest that members' price sensitivity to the cost-sharing requirements is likely influencing their level of health services use. This finding is consistent with previous insurance literature showing that the type of health plan cost-sharing arrangement has a positive effect on the use of services and total expenditures.
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  • In Copyright
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  • "... in partial fulfillment of the requirements for the degree of Doctor of Philosophy in the Department of Health Policy and Management, Gillings School of Global Public Health."
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  • Greene, Sandra
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  • Chapel Hill, NC
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  • Open access
Date uploaded
  • March 18, 2013

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