Even with open enrollment and mandated purchase, incentives created by adverse selection may undermine the efficiency of service offerings by plans in the new health insurance Exchanges created by the Affordable Care Act. Using data on persons likely to participate in Exchanges drawn from five waves of the Medical Expenditure Panel Survey, we measure plan incentives in two ways. First, we construct predictive ratios, improving on current methods by taking into account the role of premiums in financing plans. Second, relying on an explicit model of plan profit maximization, we measure incentives based on the predictability and predictiveness of various medical diagnoses. Among the chronic diseases studied, plans have the greatest incentive to skimp on care for cancer, and mental health and substance abuse.
Keywords: Adverse selection; Exchanges; Health insurance.
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