Adverse Selection and Access to Specialty Care in Medicaid

Abstract

Public health insurance programs in the United States are increasingly administered by private managed care organizations (MCOs). Today, more than 70% of Medicaid enrollees are enrolled in comprehensive, risk-based managed care. One longstanding concern in Medicaid is inadequate access to specialty care. While prior research has established that Medicaid payment rates are an important driver of access, adverse selection may also play a role. In this paper, I investigate the extent to which MCOs limit access to specialists due to adverse selection.

I first examine plans’ incentives to restrict access to specialty care. I focus on one of the largest MMC markets in the United States, New York City, and quantify the selection incentives associated with 29 different physician specialties. I measure incentives in a naive payment system with no risk adjustment, then test the performance of risk adjustment at mitigating these incentives. I find that adverse selection creates strong incentives for MMC plans to restrict access to specific specialties, including oncology and infectious disease, with plans losing up to $4,000/month on enrollees who visit these specialists. New York’s risk adjustment system does little to mitigate these losses.

Next, I test whether MCOs ration access to specialists when adverse selection creates strong incentives for them to do so. There are two ways plans might restrict access: by constructing narrow provider networks or through utilization management techniques like prior authorization. First, I test whether plans explicitly exclude specialists that treat unprofitable patients from their provider networks. Then, I estimate a regression with enrollee and month-of-enrollment fixed effects to test whether enrollees use disproportionately less care in adversely selected specialties when they are enrolled in managed care relative to fee-for-service Medicaid (FFS). In this analysis, I exploit the fact that most Medicaid enrollees in NYC spend several months in FFS before choosing a managed care plan. While I find only small effects of adverse selection on plans’ de jure specialist networks, I find that Medicaid enrollees have 8.4% fewer claims in adversely selected specialties when they are enrolled in MMC, as compared with FFS. By contrast, enrollees use about 90% more care in profitable specialties when they are enrolled in MMC (vs. FFS).