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Measuring Selection Incentives in Managed Care: Evidence from the Massachusetts State Employee Insurance Program

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  • Anupa Bir
  • Karen Eggleston

Abstract

Health economists and policymakers have long recognized that capitation gives insurers incentive to manipulate their offerings to deter the sick and attract the healthy. The shadow-price ap- proach to measuring such selection incentives was pioneered by Frank, Glazer and McGuire (2000). We extend their model to allow for partial capitation and nonfinancial concerns of insurers. We calculate three kinds of selection metrics using managed care medical and pharmacy spending data for fiscal years 2001 and 2002 from the Massachusetts state employee insurance program. Financial returns to risk selection are high, as indicated by all three selection indices as well as by the direct profits an insurer could earn if it could exclude unprofitable patients. Empirically, the financial temptation to distort service quality increases non- linearly with supply-side cost sharing. The more an insurer di- rectly values quality or patient benefit relative to profit, the less severe risk selection incentives become.

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Bibliographic Info

Paper provided by Department of Economics, Tufts University in its series Discussion Papers Series, Department of Economics, Tufts University with number 0605.

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Date of creation: 2006
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Handle: RePEc:tuf:tuftec:0605

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Keywords: risk selection; managed health care; shadow price; mixed payment;

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References

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Cited by:
  1. 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.
  2. Gilbert E. Metcalf, 2006. "Value-Added Tax," Discussion Papers Series, Department of Economics, Tufts University 0608, Department of Economics, Tufts University.
  3. Ronald Eduardo Gómez Suárez, 2007. "Cream-Skimming And Risk Adjustment in Colombian Health Insurance System:: The Public Insurer Case," ARCHIVOS DE ECONOMÍA 004295, DEPARTAMENTO NACIONAL DE PLANEACIÓN.
  4. Karen Eggleston & Randall P. Ellis & Mingshan Lu, 2007. "Prevention and Dynamic Risk Adjustment," Boston University - Department of Economics - Working Papers Series WP2007-023, Boston University - Department of Economics.

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