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The Evolution of Health Insurer Costs in Massachusetts, 2010-12

Author

Listed:
  • Kate Ho

    (Columbia University)

  • Ariel Pakes

    (Harvard University)

  • Mark Shepard

    (Harvard University)

Abstract

We analyze the evolution of health insurer costs in Massachusetts between 2010-2012, paying particular attention to changes in the composition of enrollees. This was a period in which Health Maintenance Organizations (HMOs) increasingly used physician cost control incentives but Preferred Provider Organizations (PPOs) did not. We show that cost growth and its components cannot be understood without accounting for (i) consumers' switching between plans, and (ii) differences in cost characteristics between new entrants and those leaving the market. New entrants are markedly less costly than those leaving (and their costs fall after their entering year), so cost growth of continuous enrollees in a plan is significantly higher than average per-member cost growth. Relatively high-cost HMO members switch to PPOs while low-cost PPO members switch to HMOs, so the impact of cost control incentives on HMO costs is likely different from their impact on market-wide insurer costs.

Suggested Citation

  • Kate Ho & Ariel Pakes & Mark Shepard, 2017. "The Evolution of Health Insurer Costs in Massachusetts, 2010-12," Working Papers 2017-010, Human Capital and Economic Opportunity Working Group.
    • Handle: RePEc:hka:wpaper:2017-010
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    References listed on IDEAS

    as
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    More about this item

    Keywords

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    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General

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