How Much Favorable Selection Is Left in Medicare Advantage?

Joseph Newhouse, Mary Price, John Hsu, J. Michael McWilliams () and Thomas G. McGuire ()
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Mary Price: Kaiser Permanente Division of Research, Harvard Medical School, and Massachusetts General Hospital
John Hsu: Kaiser Permanente Division of Research, Harvard Medical School, and Massachusetts General Hospital
J. Michael McWilliams: Harvard Medical School
Thomas G. McGuire: Harvard Medical School and the National Bureau of Economic Research

American Journal of Health Economics, 2015, vol. 1, issue 1, 1-26

Abstract: The health economics literature contains two models of selection, one with endogenous plan characteristics to attract good risks and one with fixed plan characteristics; neither model contains a regulator. Medicare Advantage, a principal example of selection in the literature, is, however, subject to anti-selection regulations. Because selection causes economic inefficiency and because the historically favorable selection into Medicare Advantage plans increased government cost, the effectiveness of the anti-selection regulations is an important policy question, especially since the Medicare Advantage program has grown to comprise 30 percent of Medicare beneficiaries. Moreover, similar anti-selection regulations are being used in health insurance exchanges for those under 65. Contrary to earlier work, we show that the strengthened anti-selection regulations that Medicare introduced starting in 2004 markedly reduced government overpayment attributable to favorable selection in Medicare Advantage. At least some of the remaining selection is plausibly related to fixed plan characteristics of Traditional Medicare versus Medicare Advantage rather than changed selection strategies by Medicare Advantage plans. © 2015 American Society of Health Economists and Massachusetts Institute of Technology

Keywords: health economics; economic inefficiency; regulation; anti-selection regulation (search for similar items in EconPapers)
JEL-codes: I10 I11 I14 I15 I18 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (33)

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Related works:
Journal Article: How Much Favorable Selection Is Left in Medicare Advantage? (2015)
Working Paper: How Much Favorable Selection Is Left in Medicare Advantage? (2014)
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