Insurers' response to selection risk: Evidence from Medicare enrollment reforms ଝ (original) (raw)
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Health affairs (Project Hope), 2012
The Affordable Care Act calls for the establishment of state-level health insurance exchanges. The viability and success of these exchanges will require effective risk-adjustment strategies to compensate for differences in enrollees' health status across health plans. This article describes why the Affordable Care Act could lead to favorable or adverse risk selection across plans. It reviews provisions in the act and recent proposed regulations intended to mitigate the problem of risk selection. We performed a simulation that showed that under the premium rating restrictions in the law, large incentives for insurers to attract healthier enrollees will be likely to persist-resulting in substantial overpayment to plans with very healthy enrollees and underpayment to plans with very sick members. We conclude that risk adjustment based on patients' diagnoses, such as will be in place from 2014 on, will yield payments to insurers that will be more accurate than what will come s...
The Effect of Benefits, Premiums, and Health Risk on Health Plan Choice in the Medicare Program
Health Services Research, 2004
Objective. To estimate the effect of Medicare1Choice (M1C) plan premiums and benefits and individual beneficiary characteristics on the probability of enrollment in a Medicare1Choice plan. Data Source. Individual data from the Medicare Current Beneficiary Survey were combined with plan-level data from Medicare Compare. Study Design. Health plan choices, including the Medicare1Choice/Fee-for-Service decision and the choice of plan within the M1C sector, were modeled using limited information maximum likelihood nested logit. Principal Findings. Premiums have a significant effect on plan selection, with an estimated out-of-pocket premium elasticity of À 0.134 and an insurer-perspective elasticity of À 4.57. Beneficiaries are responsive to plan characteristics, with prescription drug benefits having the largest marginal effect. Sicker beneficiaries were more likely to choose plans with drug benefits and diabetics were more likely to pick plans with vision coverage. Conclusions. Plan characteristics significantly impact beneficiaries' decisions to enroll in Medicare M1C plans and individuals sort themselves systematically into plans based on individual characteristics.
Open Enrollment Periods and Plan Choices
National Bureau of Economic Research (No. w24156), 2017
Open enrollment periods are pervasively used in insurance markets to limit adverse selection risks resulting when enrollees can switch plans at will. We exploit a change in the open enrollment rules of Medicare Part C and Part D to analyze how Medicare beneficiaries responded to the option of switching to 5-star rated plans at anytime, in a setting where insurers adjusted premiums and benefit design to counterbalance the increased selection risk. We find that within-year switches to 5-star plans increased by 7-16% and that those who switch are advantageously selected. Furthermore, demand for 5-star plans across the years did not change.
Understanding Biased Selection in Medicare HMOs
Health Services Research, 2003
Objective. To investigate the extent of favorable health maintenance organization (HMO) selection for a longitudinal cohort of Medicare beneficiaries, examine whether the extent of favorable selection varies with the degree of Medicare HMO market penetration in a county, and explain conflicting findings in the literature on favorable HMO selection. Data Sources. A panel of 1992-1996 data from the Medicare Current Beneficiary Survey (MCBS), supplemented with linked data from the Area Resource File and Medicare administrative datasets. Study Design. Using random effects probit estimation, we model a beneficiary's HMO enrollment status as a function of self-reported health status and Medicare HMO market penetration. Data Extraction Methods. The MCBS data for beneficiaries residing in states served by Medicare HMOs in 1992-1996 were linked by county to the supplementary datasets. Principal Findings. We find that favorable selection persists in the cohort over time on some, but not all, measures. We find no substantial association between favorable HMO selection and HMO market penetration. We find that conflicting findings in the literature on favorable HMO selection may be explained by several methodological choices, including the choice of health status measure and the structure of the sample. Conclusions. Our results support further risk adjustment of the adjusted average per capita cost (AAPCC) payment formula.
Sources of Advantageous Selection: Evidence from the Medigap Insurance Market
Journal of Political Economy, 2008
We provide strong evidence of advantageous selection in the Medigap insurance market, and analyze its sources. Using Medicare Current Beneficiary Survey (MCBS) data, we find that, conditional on controls for the price of Medigap, medical expenditures for senior citizens with Medigap coverage are, on average, about 4,000lessthanforthosewithout.But,ifweconditiononhealth,expendituresforseniorsonMedigapareabout4,000 less than for those without. But, if we condition on health, expenditures for seniors on Medigap are about 4,000lessthanforthosewithout.But,ifweconditiononhealth,expendituresforseniorsonMedigapareabout2,000 more. These two findings can only be reconciled if those with less health expenditure risk are more likely to purchase Medigap, implying advantageous selection. By combining the MCBS and the Health and Retirement Study (HRS), we investigate the sources of this advantageous selection. These include income, education, longevity expectations and financial planing horizons, as well as cognitive ability. Once we condition on all these factors, seniors with higher expected medical expenditure are indeed more likely to purchase Medigap. Surprisingly, risk preferences do not appear to be a source of advantageous selection. But cognitive ability emerges as a particularly important factor, consistent with a view that many senior citizens have difficulty understanding Medicare and Medigap rules.
Selection stories: Understanding movement across health plans
Journal of Health Economics, 2010
This study assesses the factors influencing the movement of people across health plans. We distinguish three types of cost-related transitions: adverse selection, the movement of the less healthy to more generous plans; adverse retention, the tendency for people to stay where they are when they get sick; and aging in place, enrollees' inertia in plan choice, leading plans with older enrollees to increase in relative cost over time. Using data from the Group Insurance Commission in Massachusetts, we show that adverse selection and aging in place are both quantitatively important. Either can materially impact equilibrium enrollments, especially when premiums to enrollees reflect these costs.
Demand elasticities and service selection incentives among competing private health plans
Journal of health economics, 2017
We examine selection incentives by health plans while refining the selection index of McGuire et al. (2014) to reflect not only service predictability and predictiveness but also variation in cost sharing, risk-adjusted profits, profit margins, and newly-refined demand elasticities across 26 disaggregated types of service. We contrast selection incentives, measured by service selection elasticities, across six plan types using privately-insured claims data from 73 large employers from 2008 to 2014. Compared to flat capitation, concurrent risk adjustment reduces the elasticity by 47%, prospective risk adjustment by 43%, simple reinsurance system by 32%, and combined concurrent risk adjustment with reinsurance by 60%. Reinsurance significantly reduces the variability of individual-level profits, but increases the correlation of expected spending with profits, which strengthens selection incentives.
A model of the impact of reimbursement schemes on health plan choice
Journal of Health Economics, 1998
. Flat capitation uniform prospective payments makes enrolling healthy enrollees profitable to health plans. Plans with relatively generous benefits may attract the sick and fail through a premium spiral. We simulate a model of idealized managed competition to explore the effect on market performance of alternatives to flat capitation such as severity-adjusted capitation and reduced supply-side cost-sharing. In our model flat capitation causes severe market problems. Severity adjustment and to a lesser extent reduced supply-side cost-sharing improve market performance, but outcomes are efficient only in cases in which people bear the marginal costs of their choices. q