Working Paper: NBER ID: w22835
Authors: Kate Ho; Ariel Pakes; Mark Shepard
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 continuing 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.
Keywords: Health Insurance; Cost Growth; Global Payments; Massachusetts
JEL Codes: I11; I13; L10
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Enrollment changes (I23) | health insurer costs (I13) |
| High-cost HMO members switch to PPOs (I13) | cost growth of continuing enrollees in a plan (G52) |
| Low-cost PPO members switch to HMOs (I13) | cost growth of continuing enrollees in a plan (G52) |
| Changes in population composition (J11) | overall cost growth (O49) |
| Cost control incentives on HMO costs (I13) | market-wide insurer costs (G22) |