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Does service-level spending show evidence of selection across health plan types?

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Abstract:

We provide an explanation for the widespread finding that capitated managed care plans attract comparatively healthy, low cost enrollees relative to traditional unmanaged plans. Using disaggregated commercial insurance claims from the Thomson-Reuters MarketScan database, we show that managed care plans spend proportionally less on those types of services that are predicted to be more profitable to ration tightly using a selection index developed by Ellis and McGuire that captures the derivative of profits with respect to reduced spending on disaggregated services. Conventional diagnosis-based risk adjusted premiums reduce selection incentives by about 50% relative to premiums that are not risk-adjusted.

Keywords: C21; D12; I11; health care spending; health insurance; managed care; risk adjustment; selection

Document Type: Research Article

DOI: http://dx.doi.org/10.1080/00036846.2011.636023

Affiliations: 1: Department of Economics,Boston University, 270 Bay State RoadBoston 02215, USA 2: Hanqing Advanced Institute of Economics and Finance, School of Finance, Renmin University of China, Beijing, China 3: Research Department,Verisk Health, Inc, Waltham, USA

Publication date: May 1, 2013

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