WHAT ARE EMPLOYERS DOING TO CREATE A COMPETITIVE MARKET FOR HEALTH CARE IN THE TWIN CITIES?

Employers' willingness to control costs is a critical aspect of pro‐competition strategies for the health‐care market. Here, we present some of the first quantitative evidence of what employers do to control health‐care costs. Our sample is 44 large private and public employers in Minnesota. We develop a theoretical model in which the employer chooses cost‐control “innovations”—along with wages, fringe benefits, and labor‐force size—to maximize profits. The role of innovations is to reduce unit costs of offering fringe benefits. Our data are from a 1982 survey. Eighty percent of the surveyed employers, representing nearly 200,000 employees, responded. Most respondents offer both indemnity insurance plans and health‐maintenance organizations (HMOs). Many firms and individual health‐insurance plans conduct cost‐control activities, but less than half of the firms which offer HMOs have adopted level‐dollar premium contributions for their family health‐insurance policies. Few plans have increased their coinsurance and deductible requirements in the past five years. We use probit equations to estimate the probability that a firm or a health plan will adopt cost‐control activities. Our analysis suggests that many firms may soon make major plan‐design changes to control health‐care costs, although they have not yet done so.