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Assessing incentives for service-level selection in private health insurance exchanges

Author

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  • McGuire, Thomas G.
  • Newhouse, Joseph P.
  • Normand, Sharon-Lise
  • Shi, Julie
  • Zuvekas, Samuel

Abstract

Even with open enrollment and mandated purchase, incentives created by adverse selection may undermine the efficiency of service offerings by plans in the new health insurance Exchanges created by the Affordable Care Act. Using data on persons likely to participate in Exchanges drawn from five waves of the Medical Expenditure Panel Survey, we measure plan incentives in two ways. First, we construct predictive ratios, improving on current methods by taking into account the role of premiums in financing plans. Second, relying on an explicit model of plan profit maximization, we measure incentives based on the predictability and predictiveness of various medical diagnoses. Among the chronic diseases studied, plans have the greatest incentive to skimp on care for cancer, and mental health and substance abuse.

Suggested Citation

  • McGuire, Thomas G. & Newhouse, Joseph P. & Normand, Sharon-Lise & Shi, Julie & Zuvekas, Samuel, 2014. "Assessing incentives for service-level selection in private health insurance exchanges," Journal of Health Economics, Elsevier, vol. 35(C), pages 47-63.
    • Handle: RePEc:eee:jhecon:v:35:y:2014:i:c:p:47-63
    DOI: 10.1016/j.jhealeco.2014.01.009
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    1. Wynand Ven & Gerrit Hamstra & Richard Kleef & Mieke Reuser & Piet Stam, 2023. "The goal of risk equalization in regulated competitive health insurance markets," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 24(1), pages 111-123, February.
    2. Joseph P. Newhouse & Mary Price & John Hsu & J. Michael McWilliams & Thomas G. McGuire, 2015. "How Much Favorable Selection Is Left in Medicare Advantage?," American Journal of Health Economics, University of Chicago Press, vol. 1(1), pages 1-26, Winter.
    3. Pilny, Adam & Wübker, Ansgar & Ziebarth, Nicolas R., 2017. "Introducing risk adjustment and free health plan choice in employer-based health insurance: Evidence from Germany," Journal of Health Economics, Elsevier, vol. 56(C), pages 330-351.
    4. Joan Costa-Font & Nilesh Raut & Courtney H. Van Houtven, 2024. "Medicaid Expansion and the Mental Health of Spousal Caregivers," Review of Economics of the Household, Springer, vol. 22(3), pages 1047-1084, September.
    5. A. A. Withagen-Koster & R. C. Kleef & F. Eijkenaar, 2020. "Incorporating self-reported health measures in risk equalization through constrained regression," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 21(4), pages 513-528, June.
    6. Geruso, Michael & McGuire, Thomas G., 2016. "Tradeoffs in the design of health plan payment systems: Fit, power and balance," Journal of Health Economics, Elsevier, vol. 47(C), pages 1-19.
    7. H. E. Frech & Peter Zweifel, 2017. "Market Socialism and Community Rating in Health Insurance," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 59(3), pages 405-427, September.
    8. Keith M. Marzilli Ericson & Kimberley H. Geissler & Benjamin Lubin, 2018. "The Impact of Partial-Year Enrollment on the Accuracy of Risk-Adjustment Systems: A Framework and Evidence," American Journal of Health Economics, University of Chicago Press, vol. 4(4), pages 454-478, Fall.
    9. Layton, Timothy J. & McGuire, Thomas G. & van Kleef, Richard C., 2018. "Deriving risk adjustment payment weights to maximize efficiency of health insurance markets," Journal of Health Economics, Elsevier, vol. 61(C), pages 93-110.
    10. A. A. Withagen-Koster & R. C. Kleef & F. Eijkenaar, 2018. "Examining unpriced risk heterogeneity in the Dutch health insurance market," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 19(9), pages 1351-1363, December.
    11. Savannah L. Bergquist & Timothy J. Layton & Thomas G. McGuire & Sherri Rose, 2018. "Intervening on the Data to Improve the Performance of Health Plan Payment Methods," NBER Working Papers 24491, National Bureau of Economic Research, Inc.
    12. Richard C. Kleef & Thomas G. McGuire & René C. J. A. Vliet & Wynand P. P. M. de Ven, 2017. "Improving risk equalization with constrained regression," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 18(9), pages 1137-1156, December.
    13. Julie Shi, 2017. "Efficiency in Plan Choice with Risk Adjustment and Risk-Based Pricing in Health Insurance Exchanges," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 42(1), pages 79-113, January.
    14. Richard van Kleef & Thomas McGuire & Rene van Vliet & Wynand van de Ven, 2015. "Improving Risk Equalization with Constrained Regression," NBER Working Papers 21570, National Bureau of Economic Research, Inc.
    15. Timothy J. Layton & Thomas G. McGuire, 2017. "Marketplace Plan Payment Options for Dealing with High-Cost Enrollees," American Journal of Health Economics, MIT Press, vol. 3(2), pages 165-191, Spring.
    16. Timothy J. Layton & Randall P. Ellis & Thomas G. McGuire, 2015. "Assessing Incentives for Adverse Selection in Health Plan Payment Systems," Boston University - Department of Economics - Working Papers Series wp2015-024, Boston University - Department of Economics.
    17. Thomas G. McGuire & Anna L. Zink & Sherri Rose, 2020. "Simplifying and Improving the Performance of Risk Adjustment Systems," NBER Working Papers 26736, National Bureau of Economic Research, Inc.
    18. Timothy Layton & Ellen J. Montz & Mark Shepard, 2017. "Health Plan Payment in U.S. Marketplaces: Regulated Competition with a Weak Mandate," NBER Working Papers 23444, National Bureau of Economic Research, Inc.
    19. Sherri Rose & Julie Shi & Thomas G. McGuire & Sharon-Lise T. Normand, 2017. "Matching and Imputation Methods for Risk Adjustment in the Health Insurance Marketplaces," Statistics in Biosciences, Springer;International Chinese Statistical Association, vol. 9(2), pages 525-542, December.
    20. Withagen-Koster, Anja A. & van Kleef, Richard C. & Eijkenaar, Frank, 2023. "Predictable profits and losses in a health insurance market with risk equalization: A multiple-contract period perspective," Health Policy, Elsevier, vol. 131(C).
    21. Bergquist, Savannah L. & Layton, Timothy J. & McGuire, Thomas G. & Rose, Sherri, 2019. "Data transformations to improve the performance of health plan payment methods," Journal of Health Economics, Elsevier, vol. 66(C), pages 195-207.
    22. Shuli Brammli-Greenberg & Jacob Glazer & Ruth Waitzberg, 2019. "Modest risk-sharing significantly reduces health plans’ incentives for service distortion," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 20(9), pages 1359-1374, December.
    23. Sungchul Park & Anirban Basu, 2018. "Alternative evaluation metrics for risk adjustment methods," Health Economics, John Wiley & Sons, Ltd., vol. 27(6), pages 984-1010, June.
    24. Wynand P. M. M. Ven & René C. J. A. Vliet & Richard C. Kleef, 2017. "How can the regulator show evidence of (no) risk selection in health insurance markets? Conceptual framework and empirical evidence," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 18(2), pages 167-180, March.
    25. Sungchul Park & Anirban Basu & Norma Coe & Fahad Khalil, 2017. "Service-level Selection: Strategic Risk Selection in Medicare Advantage in Response to Risk Adjustment," NBER Working Papers 24038, National Bureau of Economic Research, Inc.

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