Do Insurers Risk-Select Against Each Other? Evidence from Medicaid and Implications for Health Reform
AbstractIncreasingly in U.S. public insurance programs, the state finances and regulates competing, capitated private health plans but does not itself directly insure beneficiaries through a public fee-for-service (FFS) plan. We develop a simple model of risk-selection in such settings. Capitation incentivizes insurers to retain low-cost clients and thus improve their care relative to high-cost clients, who they prefer would switch to a competitor. We test this prediction using county transitions from FFS Medicaid to capitated Medicaid managed care (MMC) for pregnant women and infants. We first document the large health disparities and corresponding cost differences between blacks and Hispanics (who make up the large majority of Medicaid enrollees in our data), with black births costing nearly double that of Hispanics. Consistent with the model, black-Hispanic infant health disparities widen under MMC (e.g., the black-Hispanic mortality gap grows by 42 percent) and black mothers' pre-natal care worsens relative to that of Hispanics. Remarkably, black birth rates fall (and abortions rise) significantly after MMC—consistent with mothers reacting to poor care by reducing fertility or plans discouraging births from high-cost groups. Implications for the ACA exchanges are discussed
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Date of creation: Jul 2013
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Find related papers by JEL classification:
- H4 - Public Economics - - Publicly Provided Goods
- I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private
- I14 - Health, Education, and Welfare - - Health - - - Health and Inequality
- J13 - Labor and Demographic Economics - - Demographic Economics - - - Fertility; Family Planning; Child Care; Children; Youth
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-07-15 (All new papers)
- NEP-DEM-2013-07-15 (Demographic Economics)
- NEP-HEA-2013-07-15 (Health Economics)
- NEP-IAS-2013-07-15 (Insurance Economics)
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- #HEJC papers for August 2013
by academichealtheconomists in The Academic Health Economists' Blog on 2013-07-31 23:00:48
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