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Related Experiment Videos

Service-level selection by HMOs in Medicare.

Zhun Cao1, Thomas G McGuire

  • 1Center for Multicultural Mental Health Research, Cambridge Health Alliance, 120 Beacon Street, 4th Floor, Somerville, MA 02143, USA. zcao@charesearch.org

Journal of Health Economics
|November 8, 2003
PubMed
Summary

Health Maintenance Organizations (HMOs) in Medicare may distort services to attract healthier patients. Analysis of Medicare fee-for-service (FFS) costs reveals evidence of this service-level selection by HMOs.

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Area of Science:

  • Health Economics
  • Health Services Research
  • Public Policy

Background:

  • Medicare beneficiaries can choose between traditional fee-for-service (FFS) and contracted Health Maintenance Organizations (HMOs).
  • Concerns exist about "adverse selection," where healthier, lower-cost individuals may disproportionately enroll in HMOs, leaving higher-cost individuals in FFS.
  • This selection can incentivize health plans to manipulate their service offerings to attract favorable risk pools.

Purpose of the Study:

  • To investigate whether HMOs engage in service-level product distortion to achieve favorable selection.
  • To examine patterns of HMO membership and healthcare costs within the FFS sector for evidence of such distortion.

Main Methods:

  • Development of a multi-service model to analyze choices between FFS and HMOs.

Related Experiment Videos

  • Estimation of the correlation between HMO market share and average FFS costs for various healthcare services.
  • Utilizing Medicare data from 1996 for the analysis.

    • Main Results:

    • A positive correlation between HMO market share and FFS costs suggests HMOs underprovide that service.
    • A negative correlation indicates HMOs overprovide the service relative to FFS.
    • The study found significant evidence of service-level selection by HMOs within the Medicare program.

    Conclusions:

    • HMOs appear to adjust their service offerings to influence beneficiary enrollment, leading to "favorable selection."
    • This service-level distortion can impact the risk mix and costs within the FFS sector.
    • Policy implications may include the need for closer monitoring of HMO service offerings and enrollment patterns.