Technological Change and Risk Adjustment: Benefit Design Incentives in Medicare Part D
American Economic Journal: Economic Policy
vol. 9,
no. 1, February 2017
(pp. 38-73)
Abstract
Subsidized health insurance markets use diagnosis-based risk adjustment to induce insurers to offer an equitable benefit to individuals of varying expected cost. I demonstrate that technological change after risk adjustment calibration--new drug entry and the onset of generic competition--made certain diagnoses profitable or unprofitable in Medicare Part D. I then exploit variation in diagnoses' profitability driven by technological change to show insurers designed more favorable benefits for drugs that treat profitable diagnoses as compared to unprofitable diagnoses. In the presence of technological change, risk adjustment may not fully neutralize insurers' incentives to select through benefit designs.Citation
Carey, Colleen. 2017. "Technological Change and Risk Adjustment: Benefit Design Incentives in Medicare Part D." American Economic Journal: Economic Policy, 9 (1): 38-73. DOI: 10.1257/pol.20140171Additional Materials
JEL Classification
- G22 Insurance; Insurance Companies; Actuarial Studies
- H51 National Government Expenditures and Health
- I13 Health Insurance, Public and Private
- I18 Health: Government Policy; Regulation; Public Health
- L65 Chemicals; Plastics; Rubber; Drugs; Biotechnology
- O33 Technological Change: Choices and Consequences; Diffusion Processes
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