New Risk-Adjustment System Was Associated With Reduced Favorable Selection In Medicare Advantage

Health Affairs (Impact Factor: 4.97). 12/2012; 31(12):2630-40. DOI: 10.1377/hlthaff.2011.1344
Source: PubMed


Health plans participating in the Medicare managed care program, called Medicare Advantage since 2003, have historically attracted healthier enrollees than has the traditional fee-for-service program. Medicare Advantage plans have gained financially from this favorable risk selection since their payments have traditionally been adjusted only minimally for clinical characteristics of enrollees, causing overpayment for healthier enrollees and underpayment for sicker ones. As a result, a new risk-adjustment system was phased in from 2004 to 2007, and a lock-in provision instituted to limit midyear disenrollment by enrollees experiencing health declines whose exodus could benefit plans financially. To determine whether these reforms were associated with intended reductions in risk selection, we compared differences in self-reported health care use and health between Medicare Advantage and traditional Medicare beneficiaries before versus after these reforms were implemented. We similarly compared differences between those who switched into or out of Medicare Advantage and nonswitchers. Most differences in 2001-03 were substantially narrowed by 2006-07, suggesting reduced selection. Similar risk-adjustment methods may help reduce incentives for plans competing in health insurance exchanges and accountable care organizations to select patients with favorable clinical risks.

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    • "McWilliams et. al. [4] show using a regression model that the implementation of the Hierarchical Condition Categories (HCC) model was associated with reduced favorable selection in the Medicare Advantage program. However, they also point out that inadequate risk adjustment would probably cause greater instability in exchange markets than in Medicare Advantage, and lead to competition among exchange plans to attract and retain healthy enrollees, as well as the withdrawal of undercompensated plans. "
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    ABSTRACT: Risk adjustment is used to calibrate payments to health plans based on the relative health status of insured populations and helps keep the health insurance market competitive. Current risk adjust-ment models use parameter estimates obtained via regression and are thus subject to estimation error. This paper discusses the impact of parameter uncertainty on risk scoring, and presents an ap-proach to create robust risk scores to incorporate ambiguity and uncertainty in the risk adjustment model. This approach is highly tractable since it involves solving a series of linear programming problems.
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    ABSTRACT: Do differences in rates of use among managed care and Fee-for-Service Medicare beneficiaries reflect selection bias or successful care management by insurers? I demonstrate a new method to estimate the treatment effect of insurance status on health care utilization. Using clinical information and risk-adjustment techniques on data on acute admission that are unrelated to recent medical care, I create a proxy measure of unobserved health status. I find that positive selection accounts for between one-quarter and one-third of the risk-adjusted differences in rates of hospitalization for ambulatory care sensitive conditions and elective procedures among Medicare managed care and Fee-for-Service enrollees in 7 years of Healthcare Cost and Utilization Project State Inpatient Databases from Arizona, Florida, New Jersey and New York matched to Medicare enrollment data. Beyond selection effects, I find that managed care plans reduce rates of potentially preventable hospitalizations by 12.5 per 1,000 enrollees (compared to mean of 46 per 1,000) and reduce annual rates of elective admissions by 4 per 1,000 enrollees (mean 18.6 per 1,000).
    Forum for Health Economics & Policy 05/2013; 16(1):137-161. DOI:10.1515/fhep-2012-0037
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    ABSTRACT: Evidence from behavioral economics reveals that decision-making in health care settings can be affected by circumstances and choice architecture. This paper conducts an analysis of choice of private Medicare plans (Medicare Advantage plans) in Miami-Dade County. We provide a detailed description of the choice of MA plans available in Miami over much of the program's history. Our analysis suggests that first becoming eligible for Medicare is the key transition point for MA, and that there is significant status quo bias in the MA market. Policy that regulates the MA market should anticipate, monitor and account for this consumer behavior.
    Inquiry: a journal of medical care organization, provision and financing 08/2013; 50(3):202-215. DOI:10.1177/0046958013516586 · 0.55 Impact Factor
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