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NATIONAL BUREAU OF ECONOMIC RESEARCH

NBER Working Papers by Mary Price

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Working Papers

March 2014How Much Favorable Selection Is Left in Medicare Advantage?
with Joseph P. Newhouse, J. Michael McWilliams, John Hsu, Thomas McGuire: w20021
There are two types of selection models in the health economics literature. One focuses on choice between a fixed set of contracts. Consumers with greater demand for medical care services prefer contracts with more generous reimbursement, resulting in a suboptimal proportion of consumers in such contracts in equilibrium. In extreme cases more generous contracts may disappear (the "death spiral"). In the other model insurers tailor the contracts they offer consumers to attract profitable consumers. An equilibrium may or may not exist in such models, but if it exists it is not first best. The Medicare Advantage program offers an opportunity to study these models empirically, although unlike the models in the economics literature there is a regulator with various tools to address sele...

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