title: HOW MUCH FAVORABLE SELECTION IS LEFT IN MEDICARE ADVANTAGE?
abstract: The health economics literature contains two models of selection, one with endogenous plan characteristics to attract good risks and one with fixed plan characteristics; neither model contains a regulator. Medicare Advantage, a principal example of selection in the literature, is, however, subject to anti-selection regulations. Because selection causes economic inefficiency and because the historically favorable selection into Medicare Advantage plans increased government cost, the effectiveness of the anti-selection regulations is an important policy question, especially since the Medicare Advantage program has grown to comprise 30 percent of Medicare beneficiaries. Moreover, similar anti-selection regulations are being used in health insurance exchanges for those under 65. Contrary to earlier work, we show that the strengthened anti-selection regulations that Medicare introduced starting in 2004 markedly reduced government overpayment attributable to favorable selection in Medicare Advantage. At least some of the remaining selection is plausibly related to fixed plan characteristics of Traditional Medicare versus Medicare Advantage rather than changed selection strategies by Medicare Advantage plans.
authors.affiliation: Harvard Medical School, Harvard T. H. Chan School of Public Health, Harvard John F. Kennedy School of Government, and National Bureau of Economic Research.
authors.forename: Joseph P
authors.initials: JP
authors.lastname: Newhouse
authors.affiliation: Kaiser Permanente Division of Research, Harvard Medical School, and Massachusetts General Hospital.
authors.forename: Mary
authors.initials: M
authors.lastname: Price
authors.affiliation: Harvard Medical School.
authors.forename: J Michael
authors.initials: JM
authors.lastname: McWilliams
authors.affiliation: Kaiser Permanente Division of Research, Harvard Medical School, and Massachusetts General Hospital.
authors.forename: John
authors.initials: J
authors.lastname: Hsu
authors.affiliation: Harvard Medical School and the National Bureau of Economic Research.
authors.forename: Thomas G
authors.initials: TG
authors.lastname: McGuire
keywords: Medicare; Medicare Advantage; selection