The Evolution of Health Insurer Costs in Massachusetts, 2010-12

26 Pages Posted: 4 Mar 2017

See all articles by Kate Ho

Kate Ho

Princeton University - Department of Economics; National Bureau of Economic Research (NBER)

Ariel Pakes

National Bureau of Economic Research (NBER); Harvard University - Department of Economics

Mark Shepard

Harvard University - Harvard Kennedy School (HKS)

Multiple version iconThere are 2 versions of this paper

Date Written: November 1, 2016

Abstract

We analyze the evolution of health insurer costs in Massachusetts between 2010-2012, paying particular attention to changes in the composition of enrollees. This was a period in which Health Maintenance Organizations (HMOs) increasingly used physician cost control incentives but Preferred Provider Organizations (PPOs) did not. We show that cost growth and its components cannot be understood without accounting for (i) consumers’ switching between plans, and (ii) differences in cost characteristics between new entrants and those leaving the market. New entrants are markedly less costly than those leaving (and their costs fall after their entering year), so cost growth of continuous enrollees in a plan is significantly higher than average per-member cost growth. Relatively high-cost HMO members switch to PPOs while low-cost PPO members switch to HMOs, so the impact of cost control incentives on HMO costs is likely different from their impact on market-wide insurer costs.

JEL Classification: I11, I13, L10

Suggested Citation

Ho, Kate and Pakes, Ariel and Shepard, Mark, The Evolution of Health Insurer Costs in Massachusetts, 2010-12 (November 1, 2016). Available at SSRN: https://ssrn.com/abstract=2927165 or http://dx.doi.org/10.2139/ssrn.2927165

Kate Ho

Princeton University - Department of Economics ( email )

Princeton, NJ 08544-1021
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Ariel Pakes

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Harvard University - Department of Economics ( email )

Littauer Center
Room 117
Cambridge, MA 02138
United States
617-495-5320 (Phone)
617-495-8570 (Fax)

Mark Shepard (Contact Author)

Harvard University - Harvard Kennedy School (HKS) ( email )

79 John F. Kennedy Street
Cambridge, MA 02138
United States

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