Exploration of Selection Bias Issues for the DoD Federal Employees Health Benefits Program Demonstration

by Donna O. Farley, Barbara O. Wynn


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Congress established a demonstration that allows beneficiaries of the Department of Defense (DoD) health benefits program, who also are Medicare-eligible, to enroll in the Federal Employees Health Benefits Program (FEHBP). The three-year demonstration began January 1, 2000. The DoD Office of Health Affairs is evaluating the costs and other effects of the demonstration. One source of cost effects may be risk selection, where beneficiaries who choose the FEHBP option are more or less costly than those who do not enroll. Health Affairs asked RAND to apply current theory and knowledge to identify how selection bias might occur as Medicare-eligible DoD beneficiaries enrolled in FEHBP plans under this demonstration, and to suggest an analytic approach to estimate the effects of selection on DoD costs. This report presents the results of that analysis. It describes the supplemental health benefits options available to Medicare beneficiaries in the demonstration sites, reviews the theoretical literature on risk selection, and develops hypotheses regarding risk selection that can be tested in the evaluation of the demonstration. It also suggests analytic methods for measuring selection and estimating the extent to which it may occur for enrollments in the FEHBP demonstration. The methods are designed to estimate (1) the extent to which adverse selection occurs in Medicare supplemental insurance enrollments for the DoD FEHBP demonstration, and (2) how much effect selection has on DoD health care costs for Medicare-eligible beneficiaries.

Table of Contents

  • Chapter One


  • Chapter Two

    Health Plan Options and Gaps in the Demonstration Markets

  • Chapter Three

    Selection Issues in FEHBP Benefits for Medicare-Eligible DoD Beneficiaries

  • Chapter Four

    Hypotheses for Selection Behaviors in FEHBP Enrollments

  • Chapter Five

    A Suggested Methodology to Evaluate Selection Bias

  • Appendix A

    Nationwide Medicare and FEHBP Plan Coverage

  • Appendix B

    Theoretical Model of Health Plan Offerings

  • Appendix C

    Adair, Iowa

  • Appendix D

    Coffee, Georgia

  • Appendix E

    Dallas, Texas

  • Appendix F

    Dover Air Force Base, Delaware

  • Appendix G

    Fort Knox, Kentucky

  • Appendix H

    Greensboro/Winston-Salem/High Point, North Carolina

  • Appendix I

    Humboldt County, California

  • Appendix J

    Naval Hospital, Camp Pendleton, California

  • Appendix K

    New Orleans, Louisiana

  • Appendix L

    Commonwealth of Puerto Rico

The research described in this report was sponsored by the Office of the Secretary of Defense (OSD). The research was conducted jointly by RAND Health's Center for Military Health Policy Research and the Forces and Resources Policy Center of the RAND National Defense Research Institute, a federally funded research and development center supported by the OSD, the Joint Staff, the unified commands, and the defense agencies.

This report is part of the RAND Corporation Monograph report series. The monograph/report was a product of the RAND Corporation from 1993 to 2003. RAND monograph/reports presented major research findings that addressed the challenges facing the public and private sectors. They included executive summaries, technical documentation, and synthesis pieces.

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