MEASURING ADVERSE SELECTION IN MANAGED HEALTH CARE

Richard G. Frank, Jacob Glazer and Thomas G. McGuire

Chapter 2 in Models of Health Plan Payment and Quality Reporting, 2017, pp 29-57 from World Scientific Publishing Co. Pte. Ltd.

Abstract: Health plans paid by capitation have an incentive to distort the quality of services they offer to attract profitable and to deter unprofitable enrollees. We characterize plans’ rationing as a “shadow price” on access to various areas of care and show how the profit maximizing shadow price depends on the dispersion in health costs, individuals’ forecasts of their health costs, the correlation between use in different illness categories, and the risk adjustment system used for payment. These factors are combined in an empirically implementable index that can be used to identify the services that will be most distorted by selection incentives. ©2000 Elsevier Science B.V. All rights reserved.

Keywords: Health Insurance; Regulation; Adverse Selection; Efficiency; Fairness; Risk Adjustment; Quality Reporting (search for similar items in EconPapers)
JEL-codes: I13 (search for similar items in EconPapers)
Date: 2017
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