title: Steps to reduce favorable risk selection in medicare advantage largely succeeded, boding well for health insurance exchanges.
abstract: Within Medicare, the Medicare Advantage program has historically attracted better risks-healthier, lower-cost patients-than has traditional Medicare. The disproportionate enrollment of lower-cost patients and avoidance of higher-cost ones during the 1990s-known as favorable selection-resulted in Medicare's spending more per beneficiary who enrolled in Medicare Advantage than if the enrollee had remained in traditional Medicare. We looked at two measures that can indicate whether favorable selection is taking place-predicted spending on beneficiaries and mortality-and studied whether policies that Medicare implemented in the past decade succeeded in reducing favorable selection in Medicare Advantage. We found that these policies-an improved risk adjustment formula and a prohibition on monthly disenrollment by beneficiaries-largely succeeded. Differences in predicted spending between those switching from traditional Medicare to Medicare Advantage relative to those who remained in traditional Medicare markedly narrowed, as did adjusted mortality rates. Because insurance exchanges set up under the Affordable Care Act will employ similar policies to combat risk selection, our results give reason for optimism about managing competition among health plans.
authors.affiliation: Division of Health Policy Research and Education, Harvard University, in Boston, Massachusetts, USA. newhouse@hcp.med.harvard.edu
authors.forename: Joseph P
authors.initials: JP
authors.lastname: Newhouse
authors.forename: Mary
authors.initials: M
authors.lastname: Price
authors.forename: Jie
authors.initials: J
authors.lastname: Huang
authors.forename: J Michael
authors.initials: JM
authors.lastname: McWilliams
authors.forename: John
authors.initials: J
authors.lastname: Hsu
mesh_terms: D000368:Aged; D000369:Aged, 80 and over; D005260:Female; D062265:Health Insurance Exchanges / Q000191:economics*; D006279:Health Maintenance Organizations / Q000191:economics; D006801:Humans; D015273:Insurance Selection Bias; D008297:Male; D006278:Medicare / Q000191:economics / Q000706:statistics & numerical data; D020398:Medicare Part C / Q000191:economics* / Q000706:statistics & numerical data; D058991:Patient Protection and Affordable Care Act / Q000191:economics* / Q000331:legislation & jurisprudence; D020379:Risk Adjustment / Q000191:economics*; D014481:United States