Working Paper: NBER ID: w19198
Authors: Ilyana Kuziemko; Katherine Meckel; Maya Rossin-Slater
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
Keywords: Medicaid; Managed Care; Health Disparities; Risk Selection; Health Reform
JEL Codes: H4; I13; I14; J13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| FFS Medicaid (I18) | MMC (Y90) |
| MMC (Y90) | improved care for healthy, low-cost pregnant women and infants (J13) |
| MMC (Y90) | worsening outcomes for high-cost patients (I11) |
| MMC (Y90) | black infant mortality rates (J13) |
| MMC (Y90) | Hispanic infant mortality rates (J13) |
| MMC (Y90) | black birth rates (J11) |
| perceived poor care and outcomes (I14) | reduced fertility (J13) |
| MMC plans (E61) | discourage births from high-cost groups (J13) |
| MMC (Y90) | worse health outcomes for infants with expected costs exceeding capitation payment (I13) |
| MMC (Y90) | divergence in health inputs and outcomes for healthy vs sick groups (I14) |