HMO Selection Incentives and Underprovision of Mental Health Care
- Presenter:
Chair: Albert Okunade; Discussant: TBA Mon June 5, 2006 13:45-15:15 Room 235
Authors: Zhun Cao (zcao@charesearch.org), Thomas G. McGuire (mcguire@hcp.med.harvard.edu)
Title: HMO Selection Incentives and Underprovision of Mental Health Care
Rationale: Adverse selection, a well-known problem in insurance markets, interferes with the provision of fair and efficient coverage for mental health (MH) services. Managed care plans paid by capitation have an incentive to attract “good” risks (e.g. people more likely to use preventive care) and avoid “bad” risks (e.g. people with MH or other chronic conditions). The problem for MH care arises because people likely to use MH coverage are generally considered “bad risks” with higher overall health care costs than other potential enrollees. Competing managed care plans may therefore structure their product in a way to discourage enrollment by persons with mental illness. This type of selection could take the form of a limited MH provider network or especially strict requirements for referral to MH specialty care.
Objectives: The purpose of this paper is to test for the presence of service-level selection against MH care in the pattern of choice of Medicare managed care plans. We improve on existing tests of service-level selection in choice models by explicit control for health status variables, by use of HMO expenditures directly, and by following beneficiaries over time.
Methodology: Using an individual choice model, we assume that an individual’s utility is affected by the benefit expected from the plan once she/he is sick, personal preferences and needs, and cost of joining a plan. Empirically, we employ a random effect logit model, where the dependent variable is a dummy indicating if the individual is enrolled in a managed care plan, versus a traditional fee-for-service plan. The independent variables include service-level medical spending, demographic and socio-economic variables, mental and physical health status, county characteristics, etc. We also assume a random disturbance that is invariant for the individual across time. Negative signs of the coefficients for previous MH spending would imply MH services are possibly underprovided.
Data: Data from Medicare Current Beneficiary Survey (MCBS, 1996-2001) are used. The MCBS provides extensive information on Medicare HMO enrollment, personal characteristics, health status, etc. The longitudinal feature of the data allows us to follow an individual’s choice over years. We also merge MCBS with Area Resource File, Medicare Market Penetration File and Census Data to obtain information on market characteristics.
Results: We find that people with higher previous expenditure in MH services are less likely to enroll in a Medicare HMO plan, even after controlling for health status. The results imply that MH services may be underprovided by Medicare HMOs, compared to physical health care services.
Conclusions: The findings in this paper provide evidence that Medicare HMOs ration care at the service level, and that MH services are underprovided by HMO. In order to ensure sufficient MH care to the elderly people, service-level risk adjustment should be adopted in the Medicare payment policy to offset the HMOs’ incentive to select against people with higher MH risk.
Acknowledgement: Research support from NIMH grant R03 MH071602-01A1 is gratefully acknowledged.
