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Preprints, Working Papers, ... Year : 2019

Subsidizing Inequality: Performance Pay and Risk Selection in Medicare

Abstract

Pay-for-performance is commonly employed to improve the quality of social services contracted out to firms. We show that insurer responses to pay-for-performance can widen the inequality in accessing social services. Focusing on the U.S. Medicare Advantage market, we find that high-quality insurance contracts responded to quality-linked payments by selecting healthier enrollees with premium differences across counties. The selection is profitable because the quality rating fails to adjust for pre-existing health differences of enrollees. As a result, quality improved mostly due to selection, and the supply of high-quality insurance shifted to the healthiest counties. Revising the quality rating could prevent these unintended consequences.
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hal-03393070 , version 1 (21-10-2021)

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Michele Fioretti, Hongming Wang. Subsidizing Inequality: Performance Pay and Risk Selection in Medicare. 2019. ⟨hal-03393070⟩
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