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

Health Plan Switching Among American Workers: Key Findings

In January 2013, researchers at the Center for Studying Health System Change (HSC) published a national study examining how often Americans with employer-sponsored health insurance switched their health plans, and why. The study, conducted for the nonpartisan National Institute for Health Care Reform (NIHCR), found that very few workers were proactively changing plans to save money or get better care. Instead, most plan switches were driven by forces outside the worker's control -- job changes and employer decisions to alter their benefit offerings.

The findings raised pointed questions about the role of consumer choice in health insurance markets. If barely any workers were actively shopping for better or cheaper plans, what did that say about the competitive forces that policymakers were counting on to hold down costs and improve quality?

Overall Plan Switching Declined Between 2003 and 2010

Drawing on data from the nationally representative HSC 2010 Health Tracking Household Survey, the study looked at plan switching behavior among 7,600 nonelderly people with employer-provided health coverage. The survey, funded by the Robert Wood Johnson Foundation, included both landline and cell phone samples to account for the growing number of households that had dropped their landline service. Response rates came in at 45 percent for the landline sample and 29 percent for the cell phone sample.

The headline numbers showed a clear downward trend. About one in eight people under 65 with employer coverage (12.8 percent) switched health plans in 2010, compared to roughly one in six (17.2 percent) in 2003. The share who switched because of a job change held steady at around 5 percent in both years. But the proportion who changed plans for other reasons dropped from 12 percent in 2003 to 7.5 percent in 2010.

Consumer-Initiated Switching Remained Rare

Among the 7.5 percent who changed plans in 2010 for reasons other than switching jobs, the majority -- 62.7 percent -- did so because their employer altered its benefit offerings. Workers did not choose to switch; their employer made the decision for them. The remaining third of non-job-related plan changes were worker-initiated, typically motivated by a desire to find a less expensive plan or one perceived as offering better quality.

When the numbers were calculated across the entire population of nonelderly Americans with employer coverage, just 2.3 percent changed plans in 2010 because they were actively seeking better quality or lower costs. That figure was nearly identical to the rate in 2003, suggesting that voluntary, consumer-driven plan switching had not meaningfully increased over the seven-year period.

"These findings suggest that consumer choice plays a relatively small role in health plan switching, with most changes resulting from job changes or changes in employers' plan offerings," noted study author Peter J. Cunningham, Ph.D., who served as HSC's senior fellow and director of quantitative research.

Why the Decline? Fewer Small-Firm Workers with Coverage

The drop in overall plan switching tracked closely with a decline in employer-sponsored coverage among workers at small and mid-sized companies. Workers at these firms tended to change plans more frequently than those at larger organizations. Between 2003 and 2010, the rate of employer coverage among workers at firms with fewer than 500 employees fell from 63 percent to 54 percent. Meanwhile, coverage rates at firms with 500 or more workers held steady at roughly 83 percent.

In other words, the pool of workers most likely to switch plans was shrinking, which partly explained why overall switching rates went down.

Limited Plan Choice Constrained Workers

The low rate of consumer-initiated switching was not surprising in light of existing research showing that most workers had limited options. Approximately half of all workers with employer coverage were offered only a single plan by their employer. Just 15 percent had three or more plans to choose from. With so few choices available, the opportunity to shop for better coverage simply did not exist for most people.

Plan switching frequency served as a rough measure of how much genuine choice and competition existed in employer health insurance markets. The data pointed to a market where competition for individual consumers was weak, at least within the employer-sponsored insurance framework.

Firm Size, Health Status, and Plan Switching Patterns

The study uncovered several patterns in who was more or less likely to switch plans.

Small-Firm Workers Switched More Often

Among people covered through firms with fewer than 100 workers, 12.3 percent changed health plans for reasons other than a job change. That compared to 7.6 percent at firms with 500 or more workers and just 5.6 percent among public-sector employees. The higher switching rate at small firms was largely driven by more frequent changes in plan offerings by those employers, most likely as the firms themselves sought to reduce their insurance costs.

Sicker Families Were Less Likely to Switch

People with health problems -- or family members with health problems -- showed a noticeably lower rate of plan switching compared to healthier populations. Among families without any adult with a chronic condition, 9 percent changed plans in the past year, which was double the rate seen in families where at least one adult had two or more chronic conditions. The pattern held when measured by self-reported health status: 8.4 percent of people in families where all adults reported excellent or good health switched plans, compared to just 5 percent in families where at least one adult reported fair or poor health.

This finding suggested that people managing ongoing health conditions were reluctant to disrupt their existing coverage arrangements, even if a theoretically better or cheaper option was available.

Switching Plans Often Meant Switching Doctors

The study also found that plan switching was associated with disruptions in care continuity. Among people who changed health plans in 2010, 13.5 percent also changed their usual source of care -- the provider or facility they typically turned to for medical help and advice. That was nearly double the 7.8 percent rate among people who kept their existing plan. The connection between plan changes and provider changes underscored one of the potential downsides of a market with more frequent switching: less stable relationships between patients and their doctors.

Implications for Health Reform and Market Competition

The researchers noted that national health reform had the potential to reshape these dynamics, particularly for workers at small firms. The creation of health insurance marketplaces and new plan choice structures could give workers more options and lead to higher rates of voluntary switching. But the study cautioned that more switching was not an unambiguous good. Greater plan turnover could weaken patient-provider relationships, including the kind of ongoing care coordination that the medical home model was designed to deliver.

The tension between promoting market competition through consumer choice and preserving the continuity of care that chronically ill patients depend on remained one of the central challenges in designing health insurance policy.

This research was conducted by the Center for Studying Health System Change, a nonpartisan policy research organization based in Washington, D.C., and affiliated with Mathematica Policy Research. HSC was committed to providing objective, timely research on the nation's evolving health system to help inform policy decisions and improve health care delivery.

Sources and Further Reading

Kaiser Family Foundation -- Employer Health Benefits Survey -- Annual data on employer-sponsored health insurance trends.

CMS -- Health Insurance Marketplace -- Federal marketplace information and enrollment resources.

Health Affairs -- Peer-reviewed health policy research and analysis.

Robert Wood Johnson Foundation -- Health policy research and programs.

Commonwealth Fund -- Research on health care system performance and coverage.