Thomas C. Buchmueller, Ph.D.

May 1, 2006

Tom Buchmueller is professor of Economics and Public Policy in the Paul Merage School of Business at the University of California at Irvine (UCI), where he is also director of the Center for Healthcare Management and Policy. In addition, Buchmueller is a faculty research associate of the National Bureau of Economic Research and is currently a visiting scholar at the Federal Research Bank of San Francisco. His research focuses on health economics, particularly the economics of insurance and interactions between public programs and private markets. In 2005, he and co-author Tony LoSasso received AcademyHealth's Article-of-the-Year Award for their work on the effect of SCHIP on public and private insurance coverage. Buchmueller was recently awarded a Packer Policy Fellowship through the Commonwealth Fund and the Australian Department of Health and Ageing to study the effect of rating rules on the market for health insurance in Australia. To conduct this research he will spend the 2006-07 academic year at the Centre for Health Economics Research and Evaluation in Sydney.

Buchmueller has received two HCFO grants. The first, awarded in November 1996, examined employee health plan choice and switching behavior under managed competition. Using data on the open enrollment choices for over 100,000 University of California (UC) employees and retirees, Buchmueller and his colleagues Paul Feldstein and Bruce Strombom analyzed the effect of price on health plan choice and switching behavior and the implications of these choices on risk selection among competing plans. They found that the competitive approach was effective in controlling health spending for the UC active employee population. In the three years immediately after UC altered its contribution policy to emphasize price difference among competing health plans, per-employee spending on health benefits fell by 26 percent. However, there was considerable variation in the response to price across employees in different risk categories. Older employees with serious health conditions were much less sensitive to price than younger, healthier ones. Similarly, employees with longer job tenure were less likely to switch health plans in response to a change in premiums than new employees. As a result of this pattern, the higher cost fee-for-service plan that was preferred by older employees and those in poor health experienced a classic adverse selection death spiral. As lower cost employees left the plan, its premiums skyrocketed leading to further declines in enrollment. Buchmueller concluded that without risk adjustment, plans that are more attractive to higher risk individuals may not be viable in a competitive market.

Buchmueller's second HCFO grant used a similar research design applied to different data to further investigate the price sensitivity of retirees in a multiple option "managed competition" setting. The data for this research came from a large employer-sponsored health benefit program where the premium contributions required of retirees varied according to when a person retired and years of service at that point in time. This variation created an excellent natural experiment for estimating price effects. Because the structure of the program resembled "premium support" models that have been proposed for the Medicare program, the results have implications for the effect of such reforms.

In the first paper using these data, Buchmueller estimated the effect of out-of-pocket premiums on plan choice. He found a statistically significant, but economically modest, effect. The estimated premium elasticities are slightly larger in magnitude than those from his earlier research on UC employees and smaller than results from the literature on active employees. The second paper from this grant, which is forthcoming, was co-authored with Sabina Ohri and examines the effect of premiums on the decision by early retirees who are not yet eligible for Medicare to take up coverage offered by their former employer. In light of the decline in employer-sponsored retiree health insurance, this population is increasingly vulnerable. Consistent with other research in this area, Buchmueller's results suggest that the take-up decision is less price sensitive than the choice among plans. Simulations suggest that if Medicare coverage were extended to adults between the ages of 55 to 64, as has been proposed, the number of people enrolling would not be particularly sensitive to the extent to which coverage was subsidized.

Publications from HCFO-Sponsored Work:

Buchmueller, T.C., "Does a Fixed-Dollar Contribution Lower Spending," Health Affairs, 17(6), 1998.

Buchmueller, T.C., "The Health Plan Choices of Retirees Under Managed Competition," Health Services Research, 35(5), 2000.

Buchmueller, T.C., 2000 "Price Sensitivity of Medicare Beneficiaries in a 'Premium Support' Setting," in Competition With Constraints. Challenges Facing Medicare Reform, Washington, DC: Urban Institute Press.

Strombom, B.A., Buchmueller, T.C. and Feldstein, P.J. "Switching Costs, Price Sensitivity and Health Plan Choice," Journal of Health Economics, 21(1), 2002.

Buchmueller, T.C. "Price and the Health Plan Choice of Retirees," Journal of Health Economics, 25(1), 2006.

Buchmueller, T.C. and Ohri, S. "Health Insurance Take-up by the Near-Elderly," Health Services Research, publication forthcoming.

Buchmueller, Thomas C., "The Health Plan Choices of Employees and Retirees in a Managed Competition Setting: Evidence from the University of California," Testimony, Senate Finance Committee, April 4, 2001.