TY - JOUR
T1 - How does risk selection respond to risk adjustment? New evidence from the Medicare Advantage Program
AU - Brown, Jason
AU - Duggan, Mark
AU - Kuziemko, Ilyana
AU - Woolston, William
N1 - Publisher Copyright:
© 2014, American Economic Association. All rights reserved.
PY - 2014/10/1
Y1 - 2014/10/1
N2 - To combat adverse selection, governments increasingly base payments to health plans and providers on enrollees' scores from risk-adjustment formulae. In 2004, Medicare began to risk-adjust capitation payments to private Medicare Advantage (MA) plans to reduce selection-driven overpayments. But because the variance of medical costs increases with the predicted mean, incentivizing enrollment of individuals with higher scores can increase the scope for enrolling "overpriced" individuals with costs significantly below the formula's prediction. Indeed, after risk adjustment, MA plans enrolled individuals with higher scores but lower costs conditional on their score. We find no evidence that overpayments were on net reduced.
AB - To combat adverse selection, governments increasingly base payments to health plans and providers on enrollees' scores from risk-adjustment formulae. In 2004, Medicare began to risk-adjust capitation payments to private Medicare Advantage (MA) plans to reduce selection-driven overpayments. But because the variance of medical costs increases with the predicted mean, incentivizing enrollment of individuals with higher scores can increase the scope for enrolling "overpriced" individuals with costs significantly below the formula's prediction. Indeed, after risk adjustment, MA plans enrolled individuals with higher scores but lower costs conditional on their score. We find no evidence that overpayments were on net reduced.
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U2 - 10.1257/aer.104.10.3335
DO - 10.1257/aer.104.10.3335
M3 - Article
C2 - 29533567
AN - SCOPUS:84907612013
SN - 0002-8282
VL - 104
SP - 3335
EP - 3364
JO - American Economic Review
JF - American Economic Review
IS - 10
ER -