Figure A3. Correlations between Willingness-to-Pay and Risk Scores.

Notes: In the figures, 50 quantiles of willingness-to-pay are on the x-axis and normalized total medical spending (spending divided by average spending) and risk scores are on the y-axis. Willingness-to-pay is generated using the expected utility model presented in the text along with the parameters of the model estimated using the choice model. Risk scores are calculated using information from the health insurance claims data. This information is passed through software from HHS to produce the risk scores. The software multiplies a vector of diagnostic- and demographic-based variables generated from the claims data by a vector of pre-estimated risk adjustment weights. A positive correlation between willingness-to-pay and total costs implies that as the price differential between Platinum and Bronze decreases, the marginal Platinum enrollee will have a lower cost than the average Platinum enrollee, i.e. the Platinum plan will be adversely selected. A positive correlation between willingness-to-pay and the risk score implies that as the price differential between Platinum and Bronze decreases, the marginal Platinum enrollee will have a lower risk score than the average Platinum enrollee, i.e. the Platinum plan will be adversely selected on adjusted costs.