Few Americans Switch Employer Health Plans for Better Quality, Lower Costs

Originally published by the Center for Studying Health System Change (HSC). HSC was a nonpartisan policy research organization funded principally by the Robert Wood Johnson Foundation.

Few Americans Switch Employer Health Plans for Better Quality, Lower Costs

NIHCR Research Brief No. 12 — January 2013

Peter J. Cunningham

Consumer choice has long been a central pillar of proposals to reform the American health insurance system. The theory is straightforward: if workers can choose among competing health plans, they will gravitate toward plans that offer better quality, more comprehensive benefits, or lower costs, forcing insurers to compete on value. But how much plan switching actually occurs among workers with employer-sponsored coverage, and when people do change plans, what motivates the switch?

This national study by Peter J. Cunningham of HSC, using data from the Community Tracking Study, found that the rate of plan switching among nonelderly Americans with employer coverage actually declined between 2003 and 2010. The findings raised important questions about whether consumer choice could serve as the competitive engine that health reform proponents envisioned.

Declining Rates of Plan Switching

Roughly one in eight nonelderly Americans with employer-sponsored coverage (12.8 percent) switched health plans in 2010, a notable drop from approximately one in six (17.2 percent) who switched in 2003. This decline occurred even as health insurance costs continued to rise and employers restructured their benefit offerings.

The composition of switching was telling. In both years, about 5 percent of people with employer coverage changed plans because they changed jobs. The remaining switches occurred for other reasons, but this non-job-related switching dropped significantly, from 12 percent in 2003 to 7.5 percent in 2010. When workers did switch plans outside of a job change, the most common reason was that their employer had altered its plan offerings, forcing employees into a different plan whether or not they wanted to change.

Consumer-Initiated Switching Remains Rare

The most striking finding was how few workers actively chose to switch plans in pursuit of lower costs or better quality. Fewer than 2.5 percent of workers in 2010 — roughly the same proportion as in 2003 — initiated a plan change to reduce their health insurance costs or to obtain a plan with better benefits, a more desirable provider network, or improved quality. In other words, active consumer shopping played a very small role in health plan switching. The vast majority of changes were driven by forces outside the worker's control: job changes and employer decisions about which plans to offer.

Several factors likely contributed to this inertia. Many workers, particularly those at small firms, had no choice of plans at all; their employer offered a single option. Even among workers with multiple plan options, the complexity of comparing plans, the difficulty of evaluating quality differences, and the disruption of switching providers all discouraged active shopping. Behavioral economics research has consistently shown that people tend to stick with default options even when alternatives might serve them better.

Implications for Health Reform and Medical Homes

The study's findings carried significant implications for national health reform. The Affordable Care Act's insurance exchanges were expected to give many Americans, particularly those working for small firms, greater choice among competing health plans. If the exchanges succeeded in expanding plan options and providing standardized quality and price information, they might generate more active consumer switching than the traditional employer-sponsored market had produced.

But more switching also came with a potential downside. If workers changed health plans frequently, they would be more likely to change primary care physicians and specialists as provider networks shifted. This churn could disrupt patient-provider relationships that took time to develop and were especially important for people with chronic conditions. The growing emphasis on patient-centered medical homes, which depended on long-term relationships between patients and primary care teams, could be undermined by a system that incentivized frequent plan switching.

The tension between promoting competition through consumer choice and preserving continuity of care through stable patient-provider relationships represented one of the central design challenges facing health reform implementation. Cunningham's research suggested that policymakers needed to think carefully about how to structure incentives so that switching driven by genuine quality and cost differences was encouraged, while switching driven by minor plan design variations or employer decisions did not needlessly disrupt the care relationships that contributed to better health outcomes.

Sources and Further Reading

AHRQ — Federal health care quality research agency.

Health Affairs — Peer-reviewed health policy research.

Robert Wood Johnson Foundation — Health policy research.

Commonwealth Fund — Research on health care quality.