HMO plans, self-selection and utilization of health care services

Abstract

This study examines the effect of health maintenance organizations (HMOs) on the use of health care services among the privately insured, nonelderly population. To consider jointly the possible self-selection bias and high frequency of zero observations in the applied utilization measures, we accommodate the endogeneity of health plan choice decisions in the censored regression model. Using data from the 2000 Medical Expenditure Panel Survey, we find strong evidence for favourable self-selection into HMO plans. Health maintenance organization enrollment is found to encourage greater use of office-based and hospital outpatient services. Overall satisfaction with the quality of care among HMO members is relatively low compared to that among nonHMO members. These findings suggest that more effort is needed to develop management strategies in HMOs in order to contain the moral hazard in utilization and assure the quality of service provided within the network of HMO providers.