Measuring adverse selection in managed health care.

Area of Science:

• Health economics
• Healthcare management
• Health services research

Background:

• Capitation payment models create incentives for health plans to manage enrollment strategically.
• Plans may distort service quality to attract low-cost enrollees and deter high-cost ones.

Purpose of the Study:

• To characterize the rationing of care by health plans as a "shadow price" on access.
• To identify the determinants of this profit-maximizing shadow price.
• To develop an index for pinpointing services most affected by selection incentives.

Main Methods:

• Economic modeling of health plan behavior under capitation.
• Analysis of how various factors influence rationing decisions.
• Development of an empirically implementable index.

Main Results:

• The "shadow price" on care access is influenced by health cost dispersion, individual health cost forecasts, illness correlation, and payment risk adjustment.
• These factors can be combined into an index to predict service distortion.

Conclusions:

• Understanding these economic incentives is crucial for regulating health plan behavior.
• The developed index can guide policy interventions aimed at ensuring equitable access to care.