Daniel Altman, David Cutler, Richard Zeckhauser “Enrollee mix, treatment intensity, and cost in competing indemnity and HMO plans” Journal of Health Economics 22 (2003) 23–45 Study of why HMOs cost less than indemnity health plans. Setting: Massachusetts Group Insurance Commission (GIC) data State employees and their dependents. One indemnity, ten HMOs. FY 1998 For single coverage, in FY 1998 Indemnity premium was 77 percent higher than the highest HMO premium. WHY?

Study decomposes cost differences between HMOS and Indemnity care Selection: healthier people enroll Intensity: HMOs offer lower intensity of treatment Pricing: HMOs negotiate lower prices Could be Interactions of these three (May also differ due to coverage differences –which services are covered. These differences are not significant in the MA GIC data.) Study uses a difference in difference approach

Model Indexes j = index of conditions k = index of treatment P = index for plans i = index of patient demographic groups variables t k = treatment k d ij = = fraction of people in demographic group i with condition j q P j = incidence of people with condition j in plan P

t P ijk = treatment k rate in plan P for demographic group i for condition j r P ijk = reimbursement rate for treatment k in plan P for demographic group i for condition j X P j = average spending in plan P for condition j Key equation (1):

Earlier paper

This paper Data 1995 GIC data 215,000 enrollees under age types of plans Table 1 GIC plan premiums, enrollment, and benefit costs for fiscal year 1995 Plan group Premium (US$) Enrollment Benefit cost (US$) Indemnity , PPO , HMOs , Note: Enrollment and benefit costs include only individuals under age 65. Premiums and benefit costs represent means over entire plan groups.

Table 2 Summary of medical conditions examined Condition Demographic universe Major treatments Claim identification Acute myocardial infarction (AMI) Live birth Cancers Breast Colon Cervix Prostate Diabetes (juvenile and adult-onset)

Table 3 Demographic distributions of GIC enrollees by insurance plan group, FY1995 Age group Indemnity plan HMOs Males Females 0– – – – All ages