Patient Self-Selection in HMOs

Prologue: Who enrolls in health maintenance organizations and for what reasons? Answering these questions is a perplexing, hut increasingly important public policy challenge as the federal government demonstrates growing interest in capitation as its payment method of choice. In this essay, economists Gail Wilensky of Project HOPE and Louis Rossiter of the Medical College of Virginia address the issue of patient self-selection by summarizing the current literature and an important collection of recently released new studies. The patient selection issue has grown in importance because as the health delivery system becomes more price competitive, health plans are developing more sophisticated methods for enrolling new members. This issue is pronounced in relationship to Medicare beneficiaries. Because older people in general consume far more medical resources, the health status of any elderly person becomes an important economic question for a health maintenance organization (HMO) that is operating at financial risk. If a disproportionate share of these high users of care enroll in a single HMO, the plan could suffer serious economic losses, even bankruptcy, because medical expenses could far exceed revenues. The selection issue also is of concern to employers, some of whom worry that their employee benefit costs are higher because more healthy workers enroll in HMOs, leaving employees who use more care in the fee-for-service alternative. Wilensky, who holds a Ph.D. in economics from the University of Michigan, managed the National Medical Care Expenditure Survey at the Department of Health and Human Services before joining Project HOPE in 1983. Most recently, Wilensky directed a HOPE study on physician reimbursement strategies for the Health Care Financing Administration (HCFA). Rossiter, who holds a Ph.D. in economics from the University of North Carolina, became very active in patient selection issues as a consequence of his central involvement in an evaluation of HCFA's Medicare HMO demonstrations.