Sources of papers now appear in parentheses after the author list.
Can Risk Adjustment Reduce Selection in the Private Health Insurance Market? New Evidence from the Medicare Advantage Program, by Jason Brown, Mark Duggan, Ilyana Kuziemko, William Woolston (unpublished working paper)
Roughly 25 percent of Medicare beneficiaries are enrolled in a private Medicare Advantage plan, a fraction that has been growing steadily in recent years. Because these plans are “at risk” for the cost of their enrollees’ care, they have an incentive to attract and retain differentially healthy enrollees. To address this problem, starting in 2004, measures of enrollee health status and health care utilization were used to determine payments for MA plans. Using both individual and aggregate county-level data, we find no evidence that this risk adjustment reduced positive selection into MA plans. Our estimates suggest that Medicare recipients who join MA plans would have cost approximately $1,200 less per year if they had remained in FFS than the average FFS beneficiary. As on average MA plans are paid substantially more per enrollee than per capita FFS spending, we estimate that a Medicare beneficiary choosing an MA plan over traditional Medicare increases total Medicare costs by $2,500. Finally, we propose and provide evidence for a mechanism for our findings: MA plans offering care and cost sharing arrangements that differentially attract and retain healthy patients.
The value of coverage in the medicare advantage insurance market, by Abe Dunn (JHE)
This paper examines the impact of coverage on demand for health insurance in the Medicare Advantage (MA) insurance market. Estimating the effects of coverage on demand poses a challenge for researchers who must consider both the hundreds of benefits that affect out-of-pocket costs (OOPC) to consumers, but also the endogeneity of coverage. These problems are addressed in a discrete choice demand model by employing a unique measure of OOPC that considers a consumer’s expected payments for a fixed bundle of health services and applying instrumental variable techniques to address potential endogeneity bias. The results of the demand model show that OOPC have a significant effect on consumer surplus and that not instrumenting for OOPC results in a significant underestimate of the value of coverage.
Health insurance and imperfect competition in the health care market, by Rhema Vaithianathan (JHE)
We show that when health care providers have market power and engage in Cournot competition, a competitive upstream health insurance market results in over-insurance and over-priced health care. Even though consumers and firms anticipate the price interactions between these two markets – the price set in one market affects the demand expressed in the other – Pareto improvements are possible. The results suggest a beneficial role for Government intervention, either in the insurance or the health care market.
Competition among differentiated health plans under adverse selection, by Pau Olivella and Marcos Vera-Hernández (JHE)
Market power and adverse selection are prevalent features of the market for pre-paid health plans. However, most of the literature on adverse selection considers extreme cases: either perfect competition or monopoly. If instead health plans are horizontally differentiated, then (i) profits derived from each low risk are higher than from each high risk and (ii) when the profits derived from each high risk are negative (cross-subsidization), a health authority as informed as the health plans can implement a Pareto-improvement. Both local and global deviations from cross-subsidization are addressed within a Nash equilibrium framework.
The U.S. Military as a Natural Experiment – Changes in Drinking Age, Military Environment, and Later Alcohol Treatment Episodes among Veterans, by Amy Wallace, Atticus Wallace, William Weeks (Military Medicine)
Before 1982, soldiers consumed alcohol legally on U.S. bases, regardless of age. By 1988, the military established policies to discourage underage and problem drinking and, along with the civilian population, fully transitioned to a 21-year minimum legal drinking age. We explored whether these changes were associated with changes in later alcohol treatment episodes among male veterans and civilians from years 1992 to 2003. Treatment rates for veterans and civilians were calculated using administrative databases for four age cohorts. Alcohol treatment rates were similar and odds ratios were ≥1.0 for veterans compared with same-aged civilians in 1992; however, by 2003, veterans’ treatment rates fell by 60% for ages 25 to 34 compared with a 20 to 25% reduction for civilians, and odds ratios fell to between 0.80 and 0.60 those of civilians. The military’s concerted efforts to enforce the 21-year minimum legal drinking age were associated with greater reductions in later alcohol treatment episodes among veterans compared with civilians.
Favorable Selection, Risk Adjustment and the Medicare Advantage Program, by Michael A. Morrisey, Meredith Kilgore, David J. Becker, Wilson Smith, and Elizabeth Delzell (unpublished working paper)
This paper examines the effects of recent changes in Medicare policy on patterns of enrollment and favorable selection in Medicare Advantage. We use Medicare claims data from 1999 – 2008 to examine the effects of changes in baseline payments, the phasein of a more sophisticated risk adjustment mechanism based on Hierarchical Condition Categories (HCCs), and the introduction of a limited annual open enrollment period. We estimate the effects of these policy changes on enrollment/disenrollment and the claims experience of individuals switching into and out of Medicare Advantage relative to those remaining in traditional Medicare. Payment generosity and the HCCs are associated with substantial increases in enrollment and decreases in disenrollment. Claims experience of those newly switching into Medicare Advantage was not affected by any of the policy reforms, but disenrollment became increasingly concentrated among high cost beneficiaries.