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Do Insurers Risk-Select Against Each Other? Evidence from Medicaid and Implications for Health Reform

Author

Listed:
  • Ilyana Kuziemko
  • Katherine Meckel
  • Maya Rossin-Slater

Abstract

Increasingly 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

Suggested Citation

  • Ilyana Kuziemko & Katherine Meckel & Maya Rossin-Slater, 2013. "Do Insurers Risk-Select Against Each Other? Evidence from Medicaid and Implications for Health Reform," NBER Working Papers 19198, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:19198
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    References listed on IDEAS

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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. #HEJC papers for August 2013
      by academichealtheconomists in The Academic Health Economists' Blog on 2013-08-01 04:00:48

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    Cited by:

    1. Jeffrey Clemens & Benedic Ippolito, 2017. "Implications of Medicaid Financing Reform for State Government Budgets," NBER Chapters,in: Tax Policy and the Economy, Volume 32 National Bureau of Economic Research, Inc.
    2. repec:eee:hapoch:v1_237 is not listed on IDEAS
    3. 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.
    4. Aizawa, Naoki & Kim, You Suk, 2015. "Advertising and Risk Selection in Health Insurance Markets," Finance and Economics Discussion Series 2015-101, Board of Governors of the Federal Reserve System (U.S.).
    5. Fang, H., 2016. "Insurance Markets for the Elderly," Handbook of the Economics of Population Aging, Elsevier.
    6. repec:eee:jhecon:v:55:y:2017:i:c:p:262-273 is not listed on IDEAS

    More about this item

    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

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