How Does Risk Selection Respond To Risk Adjustment? Evidence From The Medicare Advantage Program

Governments often contract with private firms to provide public services such as health care and education. To decrease firms' incentives to selectively enroll low-cost individuals, governments frequently "Risk-adjust" payments to firms based on enrollees' characteristics. The authors model how risk adjustment affects selection and differential payments - -the government's payments to a firm for covering an individual minus the counterfactual cost had the government directly covered her. They show that firms reduce selection along dimensions included in the risk-adjustment formula, while increasing selection along excluded dimensions.

Provided by: National Bureau of Economic Research Topic: Data Management Date Added: Apr 2011 Format: PDF

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