Scope and Incentives for Risk Selection in Health Insurance Markets With Regulated Competition: A Conceptual Framework and International Comparison.

In health insurance markets with regulated competition, regulators face the challenge of preventing risk selection. This paper provides a framework for analyzing the scope (i.e., potential actions by insurers and consumers) and incentives for risk selection in such markets. Our approach consists of three steps. First, we describe four types of risk selection: (a) selection by consumers in and out of the market, (b) selection by consumers between high- and low-value plans, (c) selection by insurers via plan design, and (d) selection by insurers via other channels such as marketing, customer service, and supplementary insurance. In a second step, we develop a conceptual framework of how regulation and features of health insurance markets affect the scope and incentives for risk selection along these four dimensions. In a third step, we use this framework to compare nine health insurance markets with regulated competition in Australia, Europe, Israel, and the United States.

Coding-Driven Changes In Measured Risk In Accountable Care Organizations.

Claims data, which form the foundation of risk adjustment in payment for health care services, may reflect efforts to capture more-or more severe-clinical conditions rather than true changes in health status. This can distort payments. We quantify this in the context of Medicare's accountable care organization (ACO) program by comparing risk scores derived from two different measurement approaches. One approach uses diagnoses coded on claims based on Centers for Medicare and Medicaid Services Hierarchical Condition Categories (HCC), and the other uses self-reported, survey-based health data from the Consumer Assessment of Healthcare Providers and Systems (CAHPS). During 2013-16 HCC-based risk scores grew faster than CAHPS-based risk scores (2.1 percent versus 0.3 percent annually), and the gap in HCC- and CAHPS-based risk score growth varied widely across ACOs. The average gap in risk score growth appears to be the result primarily of HCC coding practices rather than poor performance of the CAHPS model, suggesting that coding practices (not necessarily driven by ACO contracts) may account for most of the observed risk score growth for ACO beneficiaries.

The Evolution of Supply and Demand in Markets for Generic Drugs.

Policy Points Much concern about generic drug markets has emerged in recent policy debates. Important changes in regulations, the structure of purchasing, and the length of the drug supply chain have affected generic drug markets. Effective price competition remains the rule in generic markets for large-selling drugs. Smaller markets and those for injectable products often have less price competition and are more susceptible to supply disruptions. CONTEXT: The image of generic drugs as a commodity sold in competitive markets is an oversimplification, as evidenced by increasing accounts of price spikes, sustained high price-cost margins, and market disruptions. The mismatch between the canonical economic model of generic drug markets and reality motivated our empirical project. METHODS: To explore recent changes in those factors impacting the supply and demand for generic drugs, we studied, from a variety of sources, the data on price, competition, supply disruptions and recalls, changes to the supply chain, and buy-side concentration. We examined quarterly data through 2018 for a cohort of 77 molecules that lost patent protection during the so-called patent cliff between 2010 and 2013. FINDINGS: On the supply side, we found that for large-market oral solids, generic entry and price declines were consistent with past studies showing a significant number of market entrants and substantial reductions in the average price of a molecule. In smaller markets for oral solids and injectable products, we observed fewer entrants, higher rates of exit, smaller price reductions, and, in some cases, considerable price instability. The number of reported shortages increased across all generic market types over time, with the rate of shortage increases especially pronounced in markets for injectable products. The number of product recalls also rose over our study period. Although we did not estimate causal effects, we did find several changes in the market environment for generic drugs that may contribute to these phenomena. The demand side for generics has become more concentrated. Supply chains rely more on producers outside the United States (particularly from China and India). Contracting practices have undergone changes that may inhibit competition in product supply. FDA regulatory scruitiny has increased. CONCLUSIONS: Competition in generic drug markets varies widely by market size and product form. Recent changes in demand-side market structure imply more downward pressure on prices stemming from buy-side concentration. The FDA's greater regulatory oversight puts upward pressure on costs, and the lengthening of the supply chain increases production uncertainty for producers. Demand and supply-side changes point to further market instabilities across all generic markets due to producers' changing economic position.

Very high and low residual spenders in private health insurance markets: Germany, The Netherlands and the U.S. Marketplaces.

We study the extremely high and low residual spenders in individual health insurance markets in three countries. A high (low) residual spender is someone for whom the residual-spending less payment (from premiums and risk adjustment)-is high (low), indicating that the person is highly underpaid (overpaid). We begin with descriptive analysis of the top and bottom 1% and 0.1% of residuals building to address the question of the degree of persistence in membership at the extremes. Common findings emerge among the countries. First, the diseases found among those with the highest residual spending are also disproportionately found among those with the lowest residual spending. Second, those at the top of the residual spending distribution (where spending exceeds payments the most) account for a massively high share of the unexplained variance in the predictions from the risk adjustment model. Third, in terms of persistence, we find that membership in the extremes of the residual spending distribution is highly persistent, raising concerns about selection-related incentives targeting these individuals. As our results show, the one-in-a-thousand people (on both sides of the residual distribution) play an outsized role in creating adverse incentives associated with health plan payment systems. In response to the observed importance of the extremes of the residual spending distribution, we propose an innovative combination of risk-pooling and reinsurance targeting the predictively undercompensated group. In all three countries, this form of risk sharing substantially improves the overall fit of payments to spending. Perhaps surprisingly, by reducing the burden on diagnostic indicators to predict high payments, our proposed risk sharing policy reduces the gap between payments and spending not only for the most undercompensated individuals but also for the most overcompensated people.

The vexing relationship between socioeconomic status and health.

In a recent issue of this Journal, Politzer, Shmueli, and Avni estimate the economic costs of health disparities due to socioeconomic status (SES) in Israel (Politzer et al., Isr J Health Policy Res 8: 46, 2019). Using three measures of SES, the socioeconomic ranking of localities, individual income, and individual education, Politzer and colleagues estimate welfare loss due to higher mortality, productivity loss due to poorer health, excess health care treatment costs, and excess disability payments for individuals with below median SES relative to those with above median SES. They find the economic costs of health disparities are substantial, adding up to between 1.1 and 3.1 billion USD annually-between 0.7 and 1.6% of Israel's GDP.This paper is useful and informative. It is, to our knowledge, the first comprehensive quantification of the economic costs stemming from health disparities in Israel. In spite of many social policies designed to level economic opportunity and social welfare generally, by most measures, Israel is among the most unequal in the distribution of income among all OECD countries (Cornfeld and Danieli, Isr Econ Rev 12:51-95, 2015). Politzer and colleagues expose the magnitude and sources of health-related loss that Israel faces because of such inequality and shows how the costs of inequality are borne to some degree by all members of society. This short commentary discusses the complicated relationship between SES and health and puts the findings from Politzer and colleagues in the context of the international literature on the subject.

Improving risk-equalization in Switzerland: Effects of alternative reform proposals on reallocating public subsidies for hospitals.

The Swiss healthcare financing system is on the verge of one of its largest reforms. The Swiss parliament is currently debating how to reallocate about 20 % of total health expenditures. Swiss cantons make substantial tax-funded contributions to health expenditures by paying 55 % of hospital inpatient costs. As health insurers are fully responsible for all outpatient costs, the present system may provide unintended incentives to treat patients in inpatient settings. This paper presents and evaluates three alternative reform proposals for the reallocation of the cantonal contribution. Two proposals are currently under consideration in the Swiss parliament, suggesting either partial cost-sharing (20 %) of all healthcare costs or inclusion of cantonal contributions into the risk-equalization fund. A third option is developed in this paper, which proposes using the cantonal funds to pay a share of insurer's expenses above a high-cost threshold. The high-cost risk-sharing alternative is clearly superior: it mitigates the incentive to discriminate against sicker individuals, improves incentives for cost control, and reduces risk of loss for insurers. The paper adds results from Switzerland to an international literature on the properties of adding high-cost risk sharing to a risk equalization model.

Staffing, Financial, and Administrative Oversight Models and Rates of Injury in Collegiate Athletes.

CONTEXT: Structural features of health care environments are associated with patient health outcomes, but these relationships are not well understood in sports medicine. OBJECTIVE: To evaluate the association between athlete injury outcomes and structural measures of health care at universities: (1) clinicians per athlete, (2) financial model of the sports medicine department, and (3) administrative reporting structure of the sports medicine department. DESIGN: Descriptive epidemiology study. SETTING: Collegiate sports medicine programs. PATIENTS OR OTHER PARTICIPANTS: Colleges that contribute data to the National Collegiate Athletic Association (NCAA) Injury Surveillance Program. MAIN OUTCOME MEASURE(S): We combined injury data from the NCAA Injury Surveillance Program, sports medicine staffing data from NCAA Research, athletic department characteristics from the United States Department of Education, and financial and administrative oversight model data from a previous survey. Rates of injury, reinjury, concussion, and time loss (days) in NCAA athletes. RESULTS: Compared with schools that had an average number of clinicians per athlete, schools 1 standard deviation above average had a 9.5% lower injury incidence (103.6 versus 93.7 per 10000 athlete-exposures [AEs]; incidence rate ratio [IRR] = 0.905, P < .001), 2.7% lower incidence of reinjury (10.6 versus 10.3 per 10000 AEs; IRR = 0.973, P = .004), and 6.7% lower incidence of concussion (6.1 versus 5.7 per 10000 AEs; IRR = 0.933, P < .001). Compared with the average, schools that had 1 standard deviation more clinicians per athlete had 16% greater injury time loss (5.0 days versus 4.2 days; IRR = 1.16, P < .001). At schools with sports medicine departments financed by or reporting to the athletics department (or both), athletes had higher injury incidences (31% and 9%, respectively). CONCLUSIONS: The financial and reporting structures of collegiate sports medicine departments as well as the number of clinicians per athlete were associated with injury risk. Increasing the number of sports medicine clinicians on staff and structuring sports medicine departments such that they are financed by and report to a medical institution may reduce athlete injury incidence.

Extreme under and overcompensation in morbidity-based health plan payments: The case of Switzerland.

In 2020, the Swiss insurer payment model will include a set of sophisticated morbidity indicators in the form of Pharmaceutical Cost Groups (PCGs), added to a payment model currently largely based on age, gender, and a crude morbidity indicator. Adding powerful risk adjustors reduces underpayment for previously highly underpaid groups but creates a new group of the highly overpaid. We characterize the diseases and patterns of health care spending in most extremely under and overpaid in the new Swiss payment model. We define extremely under and overpaid to be those in the top and bottom 1 and .1 percentiles of the distribution of spending less payment, respectively. The under and overpaid share some of the same health conditions, among them kidney disease. The highly underpaid account for a massively disproportionate share of the unexplained variance in the new payment model. Membership in the tails of the distribution of spending residuals after risk adjustment is persistent, implying that the highly over and underpaid merit special attention in design of insurer payment models.

Data transformations to improve the performance of health plan payment methods.

The conventional method for developing health care plan payment systems uses observed data to study alternative algorithms and set incentives for the health care system. In this paper, we take a different approach and transform the input data rather than the algorithm, so that the data used reflect the desired spending levels rather than the observed spending levels. We present a general economic model that incorporates the previously overlooked two-way relationship between health plan payment and insurer actions. We then demonstrate our systematic approach for data transformations in two Medicare applications: underprovision of care for individuals with chronic illnesses and health care disparities by geographic income levels. Empirically comparing our method to two other common approaches shows that the "side effects" of these approaches vary by context, and that data transformation is an effective tool for addressing misallocations in individual health insurance markets.

Market Concentration and Potential Competition in Medicare Advantage.

Issue: Medicare Advantage (MA), the private option to traditional Medicare, now serves roughly 37 percent of beneficiaries. Congress intended MA plans to achieve efficiencies in the provision of health care that lead to savings for Medicare through managed competition among private health plans. Goal: Two elements are needed for savings to accrue: a sound payment policy and effective competition among the private plans. This brief examines the latter. Methods: We use data from 2009­17 to describe market structure in MA, including the insurers offering plans and enrollment in each U.S. county. We measure both actual and potential competitors for each county for each year. Key Findings and Conclusions: MA markets are highly concentrated and have become more concentrated since 2009. From 2009­17, 70 percent or more of enrollees were in highly concentrated markets, dominated by two or three insurers. Since the payment system used to reimburse insurers selling in the MA market relies on competition to spur efficiency and premiums that more closely reflect insurers' actual costs, these developments suggest that taxpayers and beneficiaries will overpay. We also find an average of six potential entrants into MA markets, which points to a source of competition that may be activated in MA. To tap into potential competition, further research is needed to understand the factors affecting entry into MA markets.

Sample Selection for Medicare Risk Adjustment Due to Systematically Missing Data.

OBJECTIVE: To assess the issue of nonrepresentative sampling in Medicare Advantage (MA) risk adjustment. DATA SOURCES: Medicare enrollment and claims data from 2008 to 2011. DATA EXTRACTION: Risk adjustment predictor variables were created from 2008 to 2010 Part A and B claims and the Medicare Beneficiary Summary File. Spending is based on 2009-2011 Part A and B, Durable Medical Equipment, and Home Health Agency claims files. STUDY DESIGN: A propensity-score matched sample of Traditional Medicare (TM) beneficiaries who resembled MA enrollees was created. Risk adjustment formulas were estimated using multiple techniques, and performance was evaluated based on R2 , predictive ratios, and formula coefficients in the matched sample and a random sample of TM beneficiaries. PRINCIPAL FINDINGS: Matching improved balance on observables, but performance metrics were similar when comparing risk adjustment formula results fit on and evaluated in the matched sample versus fit on the random sample and evaluated in the matched sample. CONCLUSIONS: Fitting MA risk adjustment formulas on a random sample versus a matched sample yields little difference in MA plan payments. This does not rule out potential improvements via the matching method should reliable MA encounter data and additional variables become available for risk adjustment.

Deriving risk adjustment payment weights to maximize efficiency of health insurance markets.

Risk-adjustment is critical to the functioning of regulated health insurance markets. To date, estimation and evaluation of a risk-adjustment model has been based on statistical rather than economic objective functions. We develop a framework where the objective of risk-adjustment is to minimize the efficiency loss from service-level distortions due to adverse selection, and we use the framework to develop a welfare-grounded method for estimating risk-adjustment weights. We show that when the number of risk adjustor variables exceeds the number of decisions plans make about service allocations, incentives for service-level distortion can always be eliminated via a constrained least-squares regression. When the number of plan service-level allocation decisions exceeds the number of risk-adjusters, the optimal weights can be found by an OLS regression on a straightforward transformation of the data. We illustrate this method with the data used to estimate risk-adjustment payment weights in the Netherlands (N = 16.5 million).

The Impact of Dementia Special Care Units on Quality of Care: An Instrumental Variables Analysis.

OBJECTIVE: To compare the quality of care following admission to a nursing home (NH) with and without a dementia special care unit (SCU) for residents with dementia. DATA SOURCES/STUDY SETTING: National resident-level minimum dataset assessments (MDS) 2005-2010 merged with Medicare claims and provider-level data from the Online Survey, Certification, and Reporting database. STUDY DESIGN: We employ an instrumental variable approach to address the endogeneity of selection into an SCU facility controlling for a range of individual-level covariates. We use "differential distance" to a nursing home with and without an SCU as our instrument. DATA COLLECTION/EXTRACTION METHODS: Minimum dataset assessments performed at NH admission and every quarter thereafter. PRINCIPAL FINDINGS: Admission to a facility with an SCU led to a reduction in inappropriate antipsychotics (-9.7 percent), physical restraints (-9.6 percent), pressure ulcers (-3.3 percent), feeding tubes (-8.3 percent), and hospitalizations (-14.7 percent). We found no impact on the use of indwelling urinary catheters. Results held in sensitivity analyses that accounted for the share of SCU beds and the facilities' overall quality. CONCLUSIONS: Facilities with an SCU provide better quality of care as measured by several validated quality indicators. Given the aging population, policies to promote the expansion and use of dementia SCUs may be warranted.

Modeling Health Care Spending Growth of Older Adults.

OBJECTIVE: To forecast out-of-pocket health care spending among older adults. Long-term forecasts allow policy makers to explore potential impacts of policy scenarios, but existing microsimulations do not incorporate details of supplemental insurance coverage and income effects on health care spending. DATA SOURCES: Dynamic microsimulation calibrated to survey and administrative data. STUDY DESIGN: We augment Urban Institute's Dynamic Simulation of Income Model (DYNASIM) with modules that incorporate demand responses and economic equilibria, with dynamics driven by exogenous technological change. A lengthy technical appendix provides details of the microsimulation model and economic assumptions for readers interested in applying these techniques. PRINCIPAL FINDINGS: The model projects total out-of-pocket spending (point of care plus premiums) as a share of income for adults aged 65 and older. People with lower incomes and poor health fare worse, despite protections of Medicaid. Spending rises 40 percent from 2012 to 2035 (from 10 to 14 percent of income) for the median beneficiary, but it increases from 5 to 25 percent of income for low-income beneficiaries and from 23 to 29 percent for the near poor who are in fair/poor health. CONCLUSIONS: Despite Medicare coverage, near-poor seniors will face out-of-pocket spending that would render them, in practical terms, underinsured.

Measuring efficiency of health plan payment systems in managed competition health insurance markets.

Adverse selection in health insurance markets leads to two types of inefficiency. On the demand side, adverse selection leads to plan price distortions resulting in inefficient sorting of consumers across health plans. On the supply side, adverse selection creates incentives for plans to inefficiently distort benefits to attract profitable enrollees. Reinsurance, risk adjustment, and premium categories address these problems. Building on prior research on health plan payment system evaluation, we develop measures of the efficiency consequences of price and benefit distortions under a given payment system. Our measures are based on explicit economic models of insurer behavior under adverse selection, incorporate multiple features of plan payment systems, and can be calculated prior to observing actual insurer and consumer behavior. We illustrate the use of these measures with data from a simulated market for individual health insurance.

Regulated Medicare Advantage And Marketplace Individual Health Insurance Markets Rely On Insurer Competition.

Two important individual health insurance markets-Medicare Advantage and the Marketplaces-are tightly regulated but rely on competition among insurers to supply and price health insurance products. Many local health insurance markets have little competition, which increases prices to consumers. Furthermore, both markets are highly subsidized in ways that can exacerbate the impact of market power-that is, the ability to set price above cost-on health insurance prices. Policy makers need to foster robust competition in both sectors and avoid designing subsidies that make the market-power problem worse.

Passive Enrollment Of Dual-Eligible Beneficiaries Into Medicare And Medicaid Managed Care Has Not Met Expectations.

The Centers for Medicare and Medicaid Services Financial Alignment Initiative represents the largest effort to date to move beneficiaries who are eligible for both Medicare and Medicaid-known as dual eligibles-into a coordinated care model by the use of passive (automatic) enrollment. Thirteen states are testing integrated payment and delivery demonstration programs in which an estimated 1.3 million dual eligibles are qualified to participate. As of October 2016, passive enrollment had brought over 300,000 dual eligibles into nine capitated programs in eight states. However, program participation levels remained relatively low. Across the eight states, only 26.7 percent of dual eligibles who were qualified to participate were enrolled, ranging from 5.3 percent for the two New York programs together to 62.4 percent in Ohio. Although the exact causes of the high rates of opting out and disenrolling that we observed among passively enrolled dual eligibles are unknown, experience to date suggests that administrative challenges were combined with demand- and supply-side barriers to enrollment. These early findings draw into question whether passive enrollment can encourage dual eligibles to participate in integrated care models.

Paying Medicare Advantage plans: To level or tilt the playing field.

Medicare beneficiaries are eligible for health insurance through the public option of traditional Medicare (TM) or may join a private Medicare Advantage (MA) plan. Both are highly subsidized but in different ways. Medicare pays for most of costs directly in TM, and subsidizes MA plans based on a "benchmark" for each beneficiary choosing a private plan. The level of this benchmark is arguably the most important policy decision Medicare makes about the MA program. Many analysts recommend equalizing Medicare's subsidy across the options - referred to in policy circles as a "level playing field." This paper studies the normative question of how to set the level of the benchmark, applying the versatile model developed by Einav and Finkelstein (EF) to Medicare. The EF framework implies unequal subsidies to counteract risk selection across plan types. We also study other reasons to tilt the field: the relative efficiency of MA vs. TM, market power of MA plans, and institutional features of the way Medicare determines subsidies and premiums. After review of the empirical and policy literature, we conclude that in areas where the MA market is competitive, the benchmark should be set below average costs in TM, but in areas characterized by imperfect competition in MA, it should be raised in order to offset output (enrollment) restrictions by plans with market power. We also recommend specific modifications of Medicare rules to make demand for MA more price elastic.