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

Amanda Kreider, Timothy J. Layton, Mark Shepard and Jacob Wallace

Journal of Health Economics, 2024, vol. 97, issue C

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.

Keywords: Adverse selection; Medicaid; Cancer hospitals (search for similar items in EconPapers)
Date: 2024
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Working Paper: Adverse Selection and Network Design Under Regulated Plan Prices: Evidence from Medicaid (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jhecon:v:97:y:2024:i:c:s0167629624000468

DOI: 10.1016/j.jhealeco.2024.102901

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