brad

I presume by the “all economist on us” you mean the reference to R-squared. It’s a measure of the statistical power of a prediction model. If R-squared is 100% then the model predicts all variation in the thing being modeled. Nothing is left to chance. If R-squared is zero it predicts nothing, you have complete randomness. How much of the randomness is predicted by Medicare’s system? As I said ~10%. How much does the Dutch system predict? I haven’t seen that reported in anything you’ve sent, but I’ve read nothing thoroughly. I’m sure there are knowledgeable readers out there who know the answer or where to find it. I just don’t have time to do all the research this second. (It is Friday night after all.)

Anyway, kudos to you for citing something. (As you can tell, I’m not a fan of folks who make claims that I’ve got something wrong but can’t cite anything to back that up. You did neither of those things and have advanced the debate forward slightly. We now know that we should look into the Dutch system further. But not me, not now.)

Dont be getting all economist on us simple country folk. I need the “if you had two tootsie rolls in this pile, and three in this pile”…..(and a diabetic ate all five, which MCO would dump the applicant…)

However, from the text of the report it is clear that the Dutch risk adjustment system includes variables that are not included in the Medicare system, such as income. Including such variables can only help performance.

I’d have to do some more digging and reading to more fully compare the two systems. If you come across any other work that does so, please share it.

Is it even remotely credible that patients and insurers don’t have additional information that is correlated with plan selection and cost (utilization)? Is there no omitted variable bias? I can’t imagine it to be so. Patient attitudes, preferences, behavior, among other factors influence degree of utilization and plan selection. Providers have access to a wealth of patient and cost information that are correlated with plan design (which has a selection effect) and utilization.

There are numerous studies that suggest favorable selection into Medicare Advantage plans (and the plans under predecessor programs) based on models that include variables not in the Medicare risk adjustment model. Moreover, it has been discovered that plans have been upcoding to make beneficiaries appear sicker than they are, gaming the risk adjustment system.

Do we really expect different risk adjustment performance and plan and patient behavior under a reformed health system for the non-elderly? Why? Upon what research ought we base such a conclusion?

Your claim, for which you provide no citation, is that risk adjustment has 90% predictive power on total plan costs. That would be incredible news, contrary to the literature with which I am familiar. I’d love to see the research that supports it. Do share!

Brad

http://www.commonwealthfund.org/Content/Publications/Fund-Reports/2009/Jan/The-Swiss-and-Dutch-Health-Insurance-Systems–Universal-Coverage-and-Regulated-Competitive-Insurance.aspx

What you and Ezra are confounding is goodness of fit and unbaised estimators. We can’t predict what every individual is going to cost. But we can have a pretty unbiased estimate for individual cost, giving us something closer to what a large population will cost. While you can’t predict any individual with accuracy, you can have a decent idea for a large population. It’s what insurers do in many lines of business. And the best rating variables don’t explain individual behavior at all, but they can predict big differences at the group level. My understanding is that Medicare Advantage and Part D risk adjustors get near the high 90s when predicting total plan costs (I cannot cite). My own research shows qualitatively similar variables in auto insurance.