Understanding Biased Selection in Medicare HMOs


  • Michelle M. Mello,

  • Sally C. Stearns,

  • Edward C. Norton,

  • Thomas C. Ricketts III


Objective To investigate the extent of favorable health maintenance organization (HMO) selection for a longitudinal cohort of Medicare beneficiaries, examine whether the extent of favorable selection varies with the degree of Medicare HMO market penetration in a county, and explain conflicting findings in the literature on favorable HMO selection.

Data Sources A panel of 1992–1996 data from the Medicare Current Beneficiary Survey (MCBS), supplemented with linked data from the Area Resource File and Medicare administrative datasets.

Study Design Using random effects probit estimation, we model a beneficiary's HMO enrollment status as a function of self-reported health status and Medicare HMO market penetration.

Data Extraction Methods The MCBS data for beneficiaries residing in states served by Medicare HMOs in 1992–1996 were linked by county to the supplementary datasets.

Principal Findings We find that favorable selection persists in the cohort over time on some, but not all, measures. We find no substantial association between favorable HMO selection and HMO market penetration. We find that conflicting findings in the literature on favorable HMO selection may be explained by several methodological choices, including the choice of health status measure and the structure of the sample.

Conclusions Our results support further risk adjustment of the adjusted average per capita cost (AAPCC) payment formula.