Favorable selection in the Medicare+Choice program: new evidence

Area of Science:

• Health Services Research
• Economics
• Public Health Policy

Background:

• Studying Medicare managed care favorable selection has been challenging due to a lack of direct enrollee data.
• Previous research was limited by the unavailability of comprehensive inpatient encounter information.

Purpose of the Study:

• To investigate the favorable-selection issue in Medicare managed care.
• To analyze differences between managed care and fee-for-service (FFS) beneficiaries using newly available data.

Main Methods:

• Utilized the first year of Balanced Budget Act (BBA)-mandated inpatient encounter data.
• Compared actual managed care enrollees with fee-for-service (FFS) beneficiaries.
• Analyzed risk factors and predicted costs for both populations.

Main Results:

• Significant differences were observed between Medicare managed care and FFS populations.
• Managed care enrollees exhibited a clear bias toward beneficiaries with lower predicted healthcare costs.
• Average risk factors were notably different between the two groups.

Conclusions:

• The findings indicate a favorable selection bias in Medicare managed care plans.
• This bias suggests managed care plans enroll beneficiaries expected to be less costly.
• The availability of BBA-mandated data provides crucial insights into managed care utilization patterns.