Insurance Turnover as an Impediment to Improving Health Care Quality
- Presenter:
Chair: TBA; Discussant: TBA Mon June 5, 2006 13:45-15:15 Room 313
Patients with chronic illnesses (e.g. diabetes, congestive heart failure, coronary heart disease) account for about 75% of medical care spending in the United States. A growing body of evidence suggests that these costs could be reduced significantly if chronic diseases were managed better. Insurers could therefore potentially profit by financing formal disease management programs for policyholders with chronic diseases. However, the financial incentive to do so is undermined by high insurance turnover rates when the returns from such investments accrue in the future or over many years. Based on membership records from a large regional insurer, we find that turnover rates are quite high. Almost 50% of members had discontinued coverage with our insurer after two years following their enrollment date, and fewer than 15% remained after eight years. The high rate of insurance turnover is primarily driven by turnover in employment. We show that turnover rates of this magnitude negate the financial incentive insurers have to finance disease management programs shown (in previous studies) to be effective at reducing costs. While the existence of longer-term insurance contracts could potentially mitigate this problem, a simple model of insurance competition in the employer group market suggests that adverse selection problems hinder the adoption of such contracts. Another interesting finding of this model is that increased insurance competition, while driving down employer group premiums, hinders adoption of cost-reducing disease management programs by increasing turnover. Finally, we show why state mandates for insurance coverage of disease management programs are likely to prove disappointing, as the underlying incentives of insurers are left unchanged.
