How does risk selection respond to risk adjustment?
Subtitle: evidence from the Medicare Advantage program
By: Jason Brown ... [et al.].
Contributors: National Bureau of Economic Research
Series: NBER working paper series -- working paper 16977; Working paper series (National Bureau of Economic Research : Online) -- working paper no. 16977.
Publisher: National Bureau of Economic Research
Published: 2011
Place of publication: Cambridge, MA
Language: eng
Format: Electronic resource
Description: "The NBER Bulletin on Aging and Health provides summaries of publications like this.  You can sign up to receive the NBER Bulletin on Aging and Health by email.  Governments often contract with private firms to provide public services such as health care and education.  To decrease firms' incentives to selectively enroll low-cost individuals, governments frequently "risk-adjust" payments to firms based on enrollees' characteristics.  We model how risk adjustment affects selection and differential payments---the government's payments to a firm for covering an individual minus the counterfactual cost had the government directly covered her.  We show that firms reduce selection along dimensions included in the risk-adjustment formula, while increasing selection along excluded dimensions.  These responses can actually increase differential payments relative to pre-risk-adjustment levels and thus risk adjustment can raise the total cost to the government of providing the public service.  We confirm both selection predictions using individual-level data from Medicare, which in 2004 began risk-adjusting payments to private Medicare Advantage plans.  We find that differential payments actually rise after risk adjustment and estimate that they totaled $30 billion in 2006, or nearly eight percent of total Medicare spending"--National Bureau of Economic Research web site.
Notes: Title from PDF file as viewed on 6/30/2011.

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