Increasingly in U.S. public insurance programs, the state finances and
regulates competing, capitated private health plans but does not itself
directly insure beneficiaries through a public fee-for-service (FFS)
plan. We develop a simple model of risk-selection in such settings.
Capitation incentivizes insurers to retain low-cost clients and thus
improve their care relative to high-cost clients, who they prefer would
switch to a competitor. We test this prediction using county transitions
from FFS Medicaid to capitated Medicaid managed care (MMC) for pregnant
women and infants. We first document the large health disparities and
corresponding cost differences between blacks and Hispanics (who make up
the large majority of Medicaid enrollees in our data), with black
births costing nearly double that of Hispanics. Consistent with the
model, black-Hispanic infant health disparities widen under MMC (e.g.,
the black-Hispanic mortality gap grows by 42 percent) and black mothers’
pre-natal care worsens relative to that of Hispanics. Remarkably, black
birth rates fall (and abortions rise) significantly after
MMC—consistent with mothers reacting to poor care by reducing fertility
or plans discouraging births from high-cost groups. Implications for the
ACA exchanges are discussed.
http://pnhp.org/blog/2013/07/08/insurers-game-risk-against-each-other/
http://pnhp.org/blog/2013/07/08/insurers-game-risk-against-each-other/
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