Predictability and predictiveness in health care spending

Abstract

This paper re-examines the relation between the predictability of health care spending and incentives due to adverse selection. Within an explicit model of health plan decisions about service levels, we show that predictability (how well spending on certain services can be anticipated), predictiveness (how well the predicted levels of certain services contemporaneously co-vary with total health care spending), and demand responsiveness all matter for adverse selection incentives. The product of terms involving these three measures of predictability, predictiveness, and demand responsiveness define an empirical index of the direction and magnitude of selection incentives. We quantify the relative magnitude of adverse selection incentives bearing on various types of health care services in Medicare. Our results are consistent with other research on service-level selection. The index of incentives can readily be applied to data from other payers.

Does better disease management in primary care reduce hospital costs? Evidence from English primary care

“…For the dataset used in this study the performance of alternative estimators was investigated in depth and it was found that, because of the very large sample sizes available, OLS models of untransformed expenditure outperformed alternatives in terms of predictive power (Dixon et al, 2009). This is in line with findings from other researchers using large samples (Dunn et al, 2003, Ellis andMcGuire, 2007). Accordingly, when modelling the level of costs we estimate linear specifications using OLS (and panel data counterparts) in what follows.…”

Making Medicare Advantage a Middle-Class Program

“…15 Other papers stress that plan choice of benefits and premiums can serve beneficiary heterogeneity, as well as being a device for selection. 16 The idea, as expressed by Pizer, Frakt and Feldman (2003), is that "Beneficiaries who highly value certain benefits can search for a plan that offers those benefits and pay the marginal premium that corresponds to their choice." One can imagine Medicare risk-adjusted plan payments as a voucher, with plan-set premiums sorting beneficiaries by tastes for additional services.…”

“…The more recent literature on service-level selection studies categories of expenditures. See Ellis and McGuire (2007) for review of some papers. 16 Another use of the premium in the context of private health insurance is for an employer to recover some of the inframarginal surplus health insurance benefits confer on high-demand employees (Miller, 2005).…”

“…See Ellis and McGuire (2007) for review of some papers. 16 Another use of the premium in the context of private health insurance is for an employer to recover some of the inframarginal surplus health insurance benefits confer on high-demand employees (Miller, 2005). 17 Restructuring the "choice architecture" in Medicare -limiting and clarifying the options -may be necessary for choice to serve beneficiaries.…”

Overpaying morbidity adjusters in risk equalization models

“…The RE model used in the Dutch basic health insurance includes morbidity adjusters based on diagnoses, drug prescriptions, durable medical equipment and prior expenses. Even these sophisticated RE models substantially undercompensate insurers for selected groups of high-risk individuals [3,4]. With undercompensation we mean that the predicted expenses (according to the relevant RE model) systematically fall below the actual expenses.…”