Does service-level spending show evidence of selection across health plan types?
We provide an explanation for the widespread finding that capitated managed care plans attract comparatively healthy, low cost enrollees relative to traditional unmanaged plans. Using disaggregated commercial insurance claims from the Thomson-Reuters MarketScan database, we show that managed care plans spend proportionally less on those types of services that are predicted to be more profitable to ration tightly using a selection index developed by Ellis and McGuire that captures the derivative of profits with respect to reduced spending on disaggregated services. Conventional diagnosis-based risk adjusted premiums reduce selection incentives by about 50% relative to premiums that are not risk-adjusted.
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Volume (Year): 45 (2013)
Issue (Month): 13 (May)
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- Partha Deb & Chenghui Li & Pravin K. Trivedi & David M. Zimmer, 2006. "The effect of managed care on use of health care services: results from two contemporaneous household surveys," Health Economics, John Wiley & Sons, Ltd., vol. 15(7), pages 743-760.
- 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.
- Arlene Ash & Randall P. Ellis & Gregory Pope & John Ayanian & David Bates & Helen Burstin & Lisa Iezzoni & Elizabeth McKay & Wei Yu, 2000. "Using Diagnoses to Describe Populations and Predict Costs," Papers 0099, Boston University - Industry Studies Programme.
- Karen Eggleston & Anupa Bir, 2009.
"Measuring Selection Incentives in Managed Care: Evidence From the Massachusetts State Employee Insurance Program,"
Journal of Risk & Insurance,
The American Risk and Insurance Association, vol. 76(1), pages 159-175.
- 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.
- Ellis, Randall P. & McGuire, Thomas G., 2007.
"Predictability and predictiveness in health care spending,"
Journal of Health Economics,
Elsevier, vol. 26(1), pages 25-48, January.
- Randall P. Ellis & Thomas G. McGuire, 2006. "Predictability and Predictiveness in Health Care Spending," Boston University - Department of Economics - Working Papers Series WP2006-001, Boston University - Department of Economics.
- 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.
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