Abstract
To test whether use of health care services is a function of firm size, we analyzed a three-year database (1988-1990) of private insurance claims, representing 28,990 firms and approximately 1.4 million subscribers in western Pennsylvania. In this database both small and large firms had higher medically underwritten costs than mid-size firms had. Furthermore, risk-pooling alternatives that included small companies had a lower cost per subscriber than the risk pools that included large companies, especially companies of more than 500 contract holders. Age, sex, health status, and the types of hospitals used for inpatient care of pooled subscribers, in combination, were found to be the important determinants of costs. With risk adjustment based on these factors to correct for adverse risk selection, community rating can be a feasible approach to increasing the affordability and accessibility of health insurance to the majority of those who lack it.
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