Potential methods to reduce risk selection and its effects.

Risk differences are inherent with voluntary enrollment or choice of health plans. If these desirable features are to be maintained, risk differences must be assessed and payments to plans adjusted. Perfect prediction of individual level costs is impossible, but it is feasible to approximate costs for large groups of employees joining a purchasing cooperative. When people within an employee group or cooperative can choose among different health plans, there is much more opportunity for risk selection. A fair but powerful referee to determine adjustment methods within the cooperative's zero-sum setting may reduce markedly the potential for selection problems.