TY  - JOUR
AU  - Frank,Richard G.
AU  - Glazer,Jacob
AU  - McGuire,Thomas G.
TI  - Measuring Adverse Selection in Managed Health Care
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 6825
PY  - 1998
Y2  - December 1998
UR  - http://www.nber.org/papers/w6825
L1  - http://www.nber.org/papers/w6825.pdf
N1  - Author contact info:
Richard Frank
Department of Health Care Policy
Harvard Medical School
180 Longwood Avenue
Boston, MA 02115
Tel: 617/432-0178
Fax: 617/432-1219
E-Mail: frank@hcp.med.harvard.edu

Jacob Glazer
Department of Economics
Boston University
270 Bay State Road, Room 553
Boston, MA 02215
Tel: 617-353-6323
Fax: 617-353-4449
E-Mail: glazerj@bu.edu

Thomas G.. McGuire
Department of Health Care Policy
Harvard Medical School
180 Longwood Avenue
Boston, MA  02115-5899
Tel: (617) 432-3536
Fax: (617) 432-2905
E-Mail: mcguire@hcp.med.harvard.edu
AB  - Health plans paid by capitation have an incentive to distort the quality of services they offer to attract profitable and to deter unprofitable enrollees.  We characterize plans' rationing as imposing a show that the profit maximizing shadow price depends on the dispersion in health costs, how well individuals forecast their health costs, the correlation between use in different illness categories, and the risk adjustment system used for payment.  We further show how these factors can be combined in an empirically implementable index that can be used to identify the services that will be most distorted in competition among managed care plans.  A simple welfare measure is developed to quantify the distortion caused by selection incentives.  We illustrate the application of our ideas with a Medicaid data set, and conduct policy analyses of risk adjustment and other options for dealing with adverse selection.
ER  -