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Predictability and Predictiveness in Health Care Spending

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Author Info

  • Randall P. Ellis

    ()
    (Department of Economics, Boston University)

  • Thomas G. McGuire

    (Harvard University)

Abstract

This paper re-examines the relation between the predictability of health care spending and incentives due to adverse selection. Within an explicit model of health plan decisions about service levels, we show that predictability (how well spending on certain services can be anticipated), predictiveness (how well the predicted levels of certain services contemporaneously co-vary with total health care spending), and demand responsiveness all matter for adverse selection incentives. The product of terms involving these three measures of predictability, predictiveness, and demand responsiveness define an empirical index of the direction and magnitude of selection incentives. We quantify the relative magnitude of adverse selection incentives bearing on various types of health care services in Medicare. Our results are consistent with other research on service-level selection. The index of incentives can readily be applied to data from other payers.

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Bibliographic Info

Paper provided by Boston University - Department of Economics in its series Boston University - Department of Economics - Working Papers Series with number WP2006-001.

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Length: 38pages
Date of creation: Jan 2006
Date of revision:
Handle: RePEc:bos:wpaper:wp2006-001

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Keywords: Health Plans; Adverse Selection; Medicare; Managed Care.;

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References

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  1. Yujing Shen & Randall P. Ellis, 2002. "How profitable is risk selection? A comparison of four risk adjustment models," Health Economics, John Wiley & Sons, Ltd., vol. 11(2), pages 165-174.
  2. Yujing Shen & Randall P. Ellis, 1999. "Cost-Minimizing Risk Adjustment," Papers 0097, Boston University - Industry Studies Programme.
  3. Glazer, Jacob & McGuire, Thomas G., 2002. "Setting health plan premiums to ensure efficient quality in health care: minimum variance optimal risk adjustment," Journal of Public Economics, Elsevier, vol. 84(2), pages 153-173, May.
  4. Cao, Zhun & McGuire, Thomas G., 2003. "Service-level selection by HMOs in Medicare," Journal of Health Economics, Elsevier, vol. 22(6), pages 915-931, November.
  5. Keeler, Emmett B. & Carter, Grace & Newhouse, Joseph P., 1998. "A model of the impact of reimbursement schemes on health plan choice," Journal of Health Economics, Elsevier, vol. 17(3), pages 297-320, June.
  6. Michelle M. Mello & Sally C. Stearns & Edward C. Norton, 2002. "Do Medicare HMOs still reduce health services use after controlling for selection bias?," Health Economics, John Wiley & Sons, Ltd., vol. 11(4), pages 323-340.
  7. Buntin, Melinda Beeuwkes & Zaslavsky, Alan M., 2004. "Too much ado about two-part models and transformation?: Comparing methods of modeling Medicare expenditures," Journal of Health Economics, Elsevier, vol. 23(3), pages 525-542, May.
  8. Frank, Richard G. & Glazer, Jacob & McGuire, Thomas G., 2000. "Measuring adverse selection in managed health care," Journal of Health Economics, Elsevier, vol. 19(6), pages 829-854, November.
  9. Joseph P. Newhouse, 2004. "Pricing the Priceless: A Health Care Conundrum," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262640589, December.
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Citations

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Cited by:
  1. Denise Doiron & Glenn Jones & Elizabeth Savage, 2008. "Healthy, wealthy and insured? The role of self-assessed health in the demand for private health insurance," Health Economics, John Wiley & Sons, Ltd., vol. 17(3), pages 317-334.
  2. Shenyi Jiang & Randall P. Ellis & Tzu-chun Kuo, 2007. "Does service-level spending show evidence of selection across health plan types?," Boston University - Department of Economics - Working Papers Series wp2007-43, Boston University - Department of Economics.
  3. Dusheiko, Mark & Gravelle, Hugh & Martin, Stephen & Rice, Nigel & Smith, Peter C., 2011. "Does better disease management in primary care reduce hospital costs? Evidence from English primary care," Journal of Health Economics, Elsevier, vol. 30(5), pages 919-932.
  4. Pau Olivella & Marcos Vera-Hernandez, 2010. "How complex are the contracts offered by health plans?," SERIEs, Spanish Economic Association, vol. 1(3), pages 305-323, July.
  5. Randall P. Ellis & Marian Vidal-Fernadez, 2007. "Response: Activity-Based Payments and Reforms of the English Hospital Payment System," Boston University - Department of Economics - Working Papers Series WP2007-035, Boston University - Department of Economics.
  6. Lee, Yong-Woo, 2012. "Asymmetric information and the demand for private health insurance in Korea," Economics Letters, Elsevier, vol. 116(3), pages 284-287.
  7. Glazer, Jacob & McGuire, Thomas G., 2013. "Making Medicare advantage a middle-class program," Journal of Health Economics, Elsevier, vol. 32(2), pages 463-473.
  8. Anupa Bir & Karen Eggleston, 2006. "Measuring Selection Incentives in Managed Care: Evidence from the Massachusetts State Employee Insurance Program," Discussion Papers Series, Department of Economics, Tufts University 0605, Department of Economics, Tufts University.
  9. Normann Lorenz, 2014. "Using quantile regression for optimal risk adjustment," Research Papers in Economics 2014-11, University of Trier, Department of Economics.
  10. Denise Doiron & Glenn Jones & Elizabeth Savage, 2006. "Healthy, wealthy and insured? The role of self-assessed health in the demand for private health insurance, CHERE Working Paper 2006/2," Working Papers 2006/2, CHERE, University of Technology, Sydney.
  11. Normann Lorenz, 2014. "The interaction of direct and indirect risk selection," Research Papers in Economics 2014-12, University of Trier, Department of Economics.
  12. Cebula, Richard, 2010. "Effects of Health Insurance and Medical Care Inflation on Voluntary Enlistment in the Army: An Empirical Study in the United States," MPRA Paper 51246, University Library of Munich, Germany.
  13. Dirk Goepffarth, 2007. "Theorie und Praxis des Risikostrukturausgleichs," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 227(5+6), pages 485-501, December.
  14. Mark Dusheiko & Hugh Gravelle & Stephen Martin & Nigel Rice & Peter C Smith, 2011. "Does Better Disease Management in Primary Care Reduce Hospital Costs?," Working Papers 065cherp, Centre for Health Economics, University of York.
  15. Glazer, Jacob & McGuire, Thomas G. & Cao, Zhun & Zaslavsky, Alan, 2008. "Using global ratings of health plans to improve the quality of health care," Journal of Health Economics, Elsevier, vol. 27(5), pages 1182-1195, September.
  16. Randall P. Ellis & Ching-to Albert Ma, 2005. "Health Insurance, Expectations, and Job Turnover," Boston University - Department of Economics - Working Papers Series WP2005-036, Boston University - Department of Economics.
  17. Cebula, Richard & Bopp, Anthony, 2007. "The Small Firms Hypothesis and the Percent of U.S. Society without Health Insurance: An Investigation Using Alternative Means Tests," MPRA Paper 56722, University Library of Munich, Germany.
  18. Cao, Zhun & McGuire, Thomas G., 2003. "Service-level selection by HMOs in Medicare," Journal of Health Economics, Elsevier, vol. 22(6), pages 915-931, November.
  19. Normann Lorenz, 2013. "Adverse selection and risk adjustment under imperfect competition," Research Papers in Economics 2013-05, University of Trier, Department of Economics.
  20. Richard J. Cebula, 2008. "Small Firm Size and Health Insurance: A Private Enterprise Perspective," Journal of Private Enterprise, The Association of Private Enterprise Education, vol. 24(Fall 2008), pages 51-77.

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