Melinda Beeuwkes Buntin

Melinda Beeuwkes Buntin

Mike Curb Professor and Chair, Dept of Health Policy, Vanderbilt University School of Medicine

Dissertation Title:  "Risk Selection in the Medicare Program"

Risk selection is a major impediment to the functioning of health insurance markets and a serious problem for those who seek to introduce more competition into the Medicare program. Ideally, health care providers should compete on the basis of cost and quality. Whenever providers are paid a fixed amount per patient or per service, however, they have an incentive to compete to attract patients who are healthier (and hence more profitable) than the population as a whole - a practice known as "risk selection." This dissertation investigates the determinants of risk selection among competing Medicare plans, examines econometric issues involved with modeling health care costs and risk selection, and seeks better ways to compensate Medicare plans that experience favorable or adverse selection.

Chapter one investigates whether or not standardizing Medicare HMOs' benefits packages would reduce risk selection. Policymakers have expressed the hope that standardization would reduce health plans' ability to risk select by constructing benefits packages that are differentially attractive to healthy beneficiaries. I find evidence that plans' relative copayment levels, physician network sizes, and quality all influence risk selection among plans. Thus, the standardization of benefits packages would restrict consumers' choices without preventing risk selection. Given this finding, in chapter two I look for ways in which Medicare payments to plans could be "risk adjusted" to reflect the expected costs of plan enrollees. I focus on decedents since they have high costs. I find that while Medicare payment systems could be improved by paying more for beneficiaries with certain terminal illnesses, incentives would remain to select against the terminally ill. Chapter three focuses on methodological issues. It presents and evaluates alternative econometric methods of modeling risk selection and predicted health care cost measures such as the selection measure used in chapter one.

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