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Adverse selection and network design under regulated plan prices: Evidence from Medicaid

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  • Kreider, Amanda R.
  • Layton, Timothy J.
  • Shepard, Mark
  • Wallace, Jacob

Abstract

Health plans for the poor increasingly limit access to specialty hospitals. We investigate the role of adverse selection in generating this equilibrium among private plans in Medicaid. Studying a network change, we find that covering a top cancer hospital causes severe adverse selection, increasing demand for a plan by 50% among enrollees with cancer versus no impact for others. Medicaid’s fixed insurer payments make offsetting this selection, and the contract distortions it induces, challenging, requiring either infeasibly high payment rates or near-perfect risk adjustment. By contrast, a small explicit bonus for covering the hospital is sufficient to make coverage profitable.

Suggested Citation

  • Kreider, Amanda R. & Layton, Timothy J. & Shepard, Mark & Wallace, Jacob, 2024. "Adverse selection and network design under regulated plan prices: Evidence from Medicaid," Journal of Health Economics, Elsevier, vol. 97(C).
    • Handle: RePEc:eee:jhecon:v:97:y:2024:i:c:s0167629624000468
    DOI: 10.1016/j.jhealeco.2024.102901
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    More about this item

    Keywords

    Adverse selection; Medicaid; Cancer hospitals;
    All these keywords.

    JEL classification:

    • H51 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Health
    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private

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