ARE SMALL FIRMS GREATER HEALTH RISKS

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 c laims, representing 28,990 firms and approximately 1.4 million subscri bers in western Pennsylvania. In this database both small and large fi rms had higher medically underwritten costs than mid-size firms had. F urthermore, risk-pooling alternatives that included small companies ha d 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 ca re of pooled subscribers, in combination, were found to be the importa nt determinants of costs. With risk adjustment based on these factors to correct for adverse risk selection, community rating can be a feasi ble approach to increasing the affordability and accessibility of heal th insurance to the majority of those who lack it.