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How Consumer Choice Affects Health Coverage Plan Design

Policymakers designing health reform packages face many key design decisions, among them designing a program to meet differing needs within a targeted population. Policymakers in state reform efforts have had to grapple with these issues. For instance, Vermont policymakers had to decide what benefits to offer under Catamount Health, while Massachusetts policymakers had to decide what health coverage would satisfy the requirement that all state residents have coverage and the levels of coverage to be offered through the Connector.

This paper draws on the experience of large employers to illustrate how consumer choices can affect program costs and discusses program design elements that can moderate the costs of choice. Without understanding the impact of adverse selection and incorporating design components to mitigate its effect, an otherwise well-designed program runs a greater risk of failure. (10 pages)

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