The effects of group demographics, the needs and objectives of the employer, and financial, risk-related and administrative constraints should be carefully considered while orchestrating the interaction of plan components, such as types of benefits and levels of coverage offered for each, employee contributions, employee communications, and plan administration. The objective is to maximize the value of the plan while minimizing the cost. The need to achieve the best fit between plan components makes good design essential. The pricing strategy is an important element in the equation. It should function to encourage cost efficient use of plan offerings.
Pricing strategy is an important element in good plan design.
The negative consequences of adverse selection on plan cost emphasize the importance of plan design. It is through design that adverse selection can be controlled, as far as it is possible to do so. Various methods can be used to mitigate the effects of adverse selection. The pricing strategy must reflect the real values of benefit choices so that no one choice is obviously better on the basis of price alone. The plan design should avoid structuring choices whose only difference is a specific coverage, such as health choices whose only difference is well-baby care or prescription drug coverage, because this encourages adverse selection.