IHS 4504 Lecture Notes - Lecture 5: Managed Care, Indemnity, Health Maintenance Organization
30 Jun 2018
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Chapter 5: Adverse Selection
Definition
- Adverse Selection
oPurchasers 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.
oThe 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:
oAdmission rates: 26-37% lower
oLength of stay: 1-20% lower
oHospital days: 18-29% lower
oOffice visits: Higher or equal
oExpensive services: Used less
HMO Effect vs. Favorable Selection
- How to keep people out of hospitals?
- How to attract people who do not use hospitals?
Question
- Can a firm that has always offered a conventional insurance plan save money by adding
an HMO option?
oHMO Effect
oFavorable Selection
o“Shadow-Pricing”
Does Favorable Selection Persist?
- If yes- keep existing subscribers happy
- If no- encourage turnover
Persistence of Medicare Expenditures among Elderly Beneficiaries
- Medicare beneficiaries 1987-1995
oIncludes Part A and Part B expenditures
- Cohorts defined by expenditures in 1989 and 1993
- Analysis conducted with and without decedents
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.
oUsed 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.
Shadow-Pricing
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Document Summary
However, adverse selection doesn"t just go away, it provides incentives for all sorts of behavioral and regulatory actions. Compared to indemnity insurance, hmos had: admission rates: 26-37% lower, length of stay: 1-20% lower, hospital days: 18-29% lower, office visits: higher or equal, expensive services: used less. Can a firm that has always offered a conventional insurance plan save money by adding an hmo option: hmo effect, favorable selection, shadow-pricing . Medicare beneficiaries 1987-1995: includes part a and part b expenditures. Cohorts defined by expenditures in 1989 and 1993. 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.
