A survey of over 8,500 employees of the U.S. Department of Health and Human Services (DHHS) during the May 1982 open season, supplemented by enrollment data for all DHHS employees enrolled in the Federal Employees Health Benefits Program (FEHBP), was used to study insurance plan selection when multiple fee-for-service options as well as HMOs are available. There is evidence of biased selection of health risks in the FEHBP, yet historically the program has exhibited considerable stability. The stability may be attributable partly to control over entry and over changes in benefits and premiums and partly to inertia on the part of enrollees. In spite of large changes in relative premiums and benefits, only 21 percent of all enrollees in the DHHS switched plans during the May 1982 open season. Those employees who did switch plans astutely identified bargains; on average they lowered their annual contribution to premium by almost 40 percent while maintaining the level of benefits. Insurance plans offering relatively generous coverage of a particular service attract a disproportionately high share of enrollees who expect substantial use of that service. The extent of adverse or beneficial selection into HMOs depends on the price and the comprehensiveness of benefits of each available fee-for-service option.

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