Health Care Managaement paper

Chapter5-Accessibilitymmedits20201.ppt

Adverse Selection

Chapter 5

Definition

Adverse Selection
Purchasers know more about their likely use services and use this knowledge to select a health plan that is designed for people with lower expected claims experience.

The ACA seeks to remove adverse selection from the consumer concern. However, adverse selection doesn’t just go away, it provides incentives for all sorts of behavioral and regulatory actions.

HMO Performance

Compared to indemnity insurance, HMOs had:

o Admission rates: 26 – 37% lower

o Length of stay: 1 – 20% lower

o Hospital days: 18 – 29% lower

o Office visits: Higher or equal

o Expensive services: Used less

Source: Miller & Luft (1994)

HMO Effect vs. Favorable Selection

How to keep people out of hospitals

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Question

Can a firm that has always offered a conventional insurance plan save money by adding an HMO option?

Does Favorable Selection Persist?

Persistence of Medicare Expenditures among Elderly Beneficiaries

Source: Garber, McCurdy, and McClellan (1999)

To what extent do sicker individuals get employer sponsored health insurance?

Kate Bundorf and colleagues used 1996-2002 MEPS data to examine the extent of adverse selection among low, medium, and large income households in ESHI plans
Used data on health status, demographics, employment and insurance coverage
“…in aggregate, the likelihood of obtaining [ESHI] nearly always increases with expected health expenditures. The positive relationship between insurance status and expected expenditures is generally consistent across the large group, medium group, and small group markets.” (page 30)

Bundorf, Herring and Pauly (2010)

Adverse Selection in the ACA

No rigorous published evidence
Theory would expect it
Penalties & limited open enrollment period would reduce it
Field reports suggest adverse selection was as large as 170% for one Texas insurer and over 200% in one Florida insurer.

Discussion Questions

Suppose that the difference in utilization between conventional insurance and managed care is attributable to favorable selection. If so, would a state Medicaid program save any money if it required all of its recipients to join a Medicaid managed care plan?

Discussion Questions

When they began offering multiple health insurance plan instead of a single plan employers first offered managed care plans, employers often found that their total health insurance costs increased. How could this occur?

Discussion Questions

If insurers of dental services understand that high utilizers are disproportionately likely to join their plan, what actions would you expect them to take to deal with this condition when they design their insurance plan?

Discussion Questions

If penalties are insufficient to keep people from forgoing required coverage under the ACA, what else might the government do to encourage people to buy coverage?

New Discussion Question

Since 2012 Medicare has allowed beneficiaries to move to a “5-Star” Medicare Advantage plan at any time. Any other moves may only happen during open enrollment.
What sort of beneficiaries are likely to switch to 5-Star plans mid-year?
As a Medicare Advantage insurer how would you deal with this?

Decardis & Guglielmo, NBER #22875, December 2016

New Discussion Question

As an insurer in an ACA exchange you may not medically underwrite. How might you deal with the problem of sicker people disproportionately joining your plans?