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Adverse selection among multiple competing health maintenance organizations
1School of Public Health, University of California, Berkeley 94720, USA.
Medical Care
|December 1, 1995
Summary
Health plans show significant risk selection, with smaller health maintenance organizations (HMOs) exhibiting extreme favorable and adverse selection. Risk adjustment is crucial for equitable payments in managed competition.
Area of Science:
- Health Economics
- Health Services Research
- Insurance Markets
Background:
- Managed competition involves multiple health plans vying for enrollees.
- Risk selection, where plans attract healthier or sicker enrollees, can distort competition.
- Accurate risk adjustment is essential for fair payment to health plans.
Purpose of the Study:
- To examine risk selection among diverse health plans.
- To compare risk measures derived from different data sources.
- To assess the impact of plan size on risk selection.
Main Methods:
- Utilized a multiequation statistical model to derive utilization and expenditure weights.
- Developed two sets of weights based on group-model HMO data and fee-for-service claims data.
- Analyzed risk selection for nine competing health plans serving 16,182 employees.
Main Results:
- Predicted expenditures showed a 23% range using HMO weights and a 17% range using fee-for-service weights.
- Larger plans (fee-for-service and group-model HMO) had risk mixes near the center.
- Smaller HMOs demonstrated both favorable and adverse selection extremes.
Conclusions:
- Statistical methods can effectively risk-adjust capitation payments.
- Increasing enrollment size may attenuate risk differences, reducing the need for adjustment.
- Understanding risk selection is vital for effective managed competition and health insurance markets.