Why are Managed Care Plans Less Expensive: Risk Selection, Utilization, or Reimbursement?

20 Pages Posted: 15 Apr 2004

See all articles by Daniel Polsky

Daniel Polsky

Bloomberg School of Public Health, Department of Health Policy and Management, Johns Hopkins University; Johns Hopkins University - Carey Business School

Sean Nicholson

Cornell University - Department of Policy Analysis & Management (PAM); National Bureau of Economic Research (NBER)

Abstract

This article develops a new method of decomposing the cost difference between HMO and non-HMO plans into observed risk selection, unobserved risk selection, utilization differences, and differences in provider reimbursement rates. We implement this method using a large national sample of employer-sponsored health insurance enrollees from the Community Tracking Study Household Survey. We find no evidence that HMO plans attract a disproportionate share of low-risk enrollees; the US$188 difference between HMO and non-HMO medical expenditures per enrollee can be explained by the relatively low provider reimbursement rates paid by HMO plans. This indicates there may be little need for employers to risk adjust insurance premiums or otherwise restrict employee choice of plan types.

Suggested Citation

Polsky, Daniel and Nicholson, Sean, Why are Managed Care Plans Less Expensive: Risk Selection, Utilization, or Reimbursement?. Journal of Risk and Insurance, Vol. 71, No. 1, pp. 21-40, March 2004, Available at SSRN: https://ssrn.com/abstract=513686

Daniel Polsky (Contact Author)

Bloomberg School of Public Health, Department of Health Policy and Management, Johns Hopkins University ( email )

624 North Broadway
Baltimore, MD 21205
United States

Johns Hopkins University - Carey Business School ( email )

100 International Drive
Baltimore, MD 21202
United States

Sean Nicholson

Cornell University - Department of Policy Analysis & Management (PAM) ( email )

120 Martha Van Rensselaer Hall
Ithaca, NY 14853
United States
607-254-6498 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
10
Abstract Views
793
PlumX Metrics