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Medicaid program choice, inertia and adverse selection

Author

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  • Marton, James
  • Yelowitz, Aaron
  • Talbert, Jeffery C.

Abstract

In 2012, Kentucky implemented Medicaid managed care statewide, auto-assigned enrollees to three plans, and allowed switching. Using administrative data, we find that the state’s auto-assignment algorithm most heavily weighted cost-minimization and plan balancing, and placed little weight on the quality of the enrollee-plan match. Immobility − apparently driven by health plan inertia − contributed to the success of the cost-minimization strategy, as more than half of enrollees auto-assigned to even the lowest quality plans did not opt-out. High-cost enrollees were more likely to opt-out of their auto-assigned plan, creating adverse selection. The plan with arguably the highest quality incurred the largest initial profit margin reduction due to adverse selection prior to risk adjustment, as it attracted a disproportionate share of high-cost enrollees. The presence of such selection, caused by differential degrees of mobility, raises concerns about the long run viability of the Medicaid managed care market without such risk adjustment.

Suggested Citation

  • Marton, James & Yelowitz, Aaron & Talbert, Jeffery C., 2017. "Medicaid program choice, inertia and adverse selection," Journal of Health Economics, Elsevier, vol. 56(C), pages 292-316.
  • Handle: RePEc:eee:jhecon:v:56:y:2017:i:c:p:292-316
    DOI: 10.1016/j.jhealeco.2017.04.006
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    Citations

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    Cited by:

    1. Timothy Layton & Alice K. Ndikumana & Mark Shepard, 2017. "Health Plan Payment in Medicaid Managed Care: A Hybrid Model of Regulated Competition," NBER Working Papers 23518, National Bureau of Economic Research, Inc.
    2. Sai Krishnan S. & Subramanian S. Iyer & Sai Balaji SMR, 2022. "Insights from behavioral economics for policymakers of choice‐based health insurance markets: A scoping review," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 25(2), pages 115-143, June.

    More about this item

    Keywords

    Medicaid; Managed care; Inertia; Adverse selection;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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