Designing employer health benefits for a heterogeneous workforce: risk adjustment and its alternatives.

Many health economists recommend that employers provide employees with a risk-adjusted choice among competing health insurance plans. However, formal risk adjustment is rarely if ever used by employers. This paper examines a range of health benefit design options available to employers, focusing attention not only on risk adjustment but also on its alternatives. We argue that while formal risk adjustment is rare, employers commonly use strategies that accomplish some of the same objectives at less cost.