Do Insurers Risk-Select Against Each Other? Evidence from Medicaid and Implications for Health Reform

53 Pages Posted: 3 Jul 2013 Last revised: 17 Jun 2021

See all articles by Ilyana Kuziemko

Ilyana Kuziemko

Columbia Business School - Finance and Economics

Katherine Meckel

University of California, San Diego (UCSD)

Maya Rossin-Slater

Columbia University

Date Written: July 2013

Abstract

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

Suggested Citation

Kuziemko, Ilyana and Meckel, Katherine and Rossin-Slater, Maya, Do Insurers Risk-Select Against Each Other? Evidence from Medicaid and Implications for Health Reform (July 2013). NBER Working Paper No. w19198, Available at SSRN: https://ssrn.com/abstract=2289108

Ilyana Kuziemko (Contact Author)

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States

Katherine Meckel

University of California, San Diego (UCSD) ( email )

9500 Gilman Drive
Mail Code 0502
La Jolla, CA 92093-0112
United States

Maya Rossin-Slater

Columbia University ( email )

1022 International Affairs Bldg
420 West 118th Street
New York, NY 10027
United States

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