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Performance Pay in Insurance Markets: Evidence from Medicare

Michele Fioretti and Hongming Wang ()
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Hongming Wang: Center for Global Economic Systems, Hitotsubashi University

No 2020.03, Working Papers from International Network for Economic Research - INFER

Abstract: Public procurement bodies increasingly resort to pay-for-performance contracts to promote efficient spending. We show that firm responses to pay-for-performance can widen the inequality in accessing social services. Focusing on the U.S. Medicare Advantage market, we find that insurers with higher quality ratings responded to bonus payments by selecting healthier enrollees with premium differences across counties. Selection is profitable because the quality rating fails to adjust for differences in the health of enrollees. Selection inflated the bonus payments and shifted the supply of high-rated insurance to the healthiest counties, hurting the healthcare access of sicker patients in the riskiest counties.

Keywords: pay-for-performance; Medicare Advantage; risk selection; quality ratings; health insurance access (search for similar items in EconPapers)
JEL-codes: I (search for similar items in EconPapers)
Pages: 110 pages
Date: 2020
New Economics Papers: this item is included in nep-hea, nep-hrm and nep-ias
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Related works:
Working Paper: Performance Pay in Insurance Markets: Evidence from Medicare (2021) Downloads
Working Paper: Performance Pay in Insurance Markets: Evidence from Medicare (2021) Downloads
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