Risk segmentation related to the offering of a consumer-directed health plan: a case study of Humana Inc

Health Services Research, August, 2004 by Laura A. Tollen, Murray N. Ross, Stephen Poor

Risk Segmentation: Are Coverage First Enrollees Healthier?

We looked at two types of information to help determine whether healthier-than-average people had chosen the Coverage First plans: demographic characteristics and claims data. Demographic characteristics are a poor predictor of health risk compared with claims and diagnostic data, but they are often used as a proxy for health status when clinical data are not available (Lee and Rogal 1997; Kronick et al. 1996; Wilson et al. 1998). Moreover, a number of CDHP sponsors have used demographic data to suggest that these plans have not disproportionately attracted low-risk members. Having access to both types of data allows us to see whether they yield the same conclusions. We found that although demographic data did not reveal favorable risk selection in the Coverage First plans, better measures of risk based on prior use and prior cost unanimously indicated risk segmentation taking place, to greater or lesser degrees, depending on the measure chosen.

Demographic Data. We compared the age, sex, family size, and salary of Coverage First subscribers with those of other plans (recall that "subscribers" refers to employees, while "members" refers to both employees and dependents). These characteristics suggested only a small degree of difference among the subscribers in the various plans and no clear evidence of risk segmentation.

As shown in Table 4, CF1 subscribers were slightly younger than the entire group (an average of 37.4 years versus 38.2 years), while CF2 subscribers were the same age as the entire group average of 38.2 years. The HMO subscribers were the youngest, averaging 36.1 years. Taken together, Coverage First subscribers were relatively less likely to be women than were subscribers in other plans. Although the majority of subscribers were women across all plan types (reflecting the fact that Humana's workforce is more female than average for American employers), the percentage female was lower in CF1 and CF2 (58 percent and 56 percent, respectively) than in the group as a whole (70 percent). Again, the HMO option stood out--this time for having the highest percentage (75) of female subscribers.

Compared with the average, Coverage First subscribers were less likely to cover children or a spouse under the plan. The average contract size under both Coverage First plans was 2.0, reflecting a higher than average number of single subscribers. In contrast, the average family size for the group as a whole was 2.3, as was the average contract size for both the HMO and Tiered PPO. (7)

Finally, Coverage First subscribers had slightly higher salaries than average. We classified employees' annual salaries using a four-category scale: a salary of less than $25,000 received a 1, a salary from $25,000 to $50,000 received a 2; a salary from $50,000 to $100,000 received a 3; a salary of more than $100,000 received a 4. The group average was 2.2, while CF1 and CF2 subscribers had average salaries of 2.5 and 2.7, respectively. HMO subscribers had the lowest average salaries (2.0), while PPO subscribers were slightly above average (2.3 and 2.4 for the Standard and Tiered plans, respectively). These data are consistent with higher-income workers being more apt to take on greater financial risk.