Choice in Public Health Insurance: Evidence from West Virginia Medicaid Redesign

Article excerpt

This paper examines the factors that affect plan choice in a public health insurance program. West Virginia recently redesigned its state Medicaid program, offering members a choice between two plans--a basic plan and an enhanced plan. The latter plan includes more benefits, but requires additional agreements intended to lead patients to adopt healthier lifestyles. We use administrative claims records' and survey data to examine plan choice. Our results yield convincing evidence that members with higher health care utilization patterns are more likely to enroll in the enhanced plan, but other factors such as education are also important.

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One of the greatest challenges confronting policymakers and households over the next several decades is how to limit rapidly rising health care costs. Given the high stakes, it is essential to understand which approaches to public health insurance reform will be effective in reaching often-proposed health care goals, such as allowing for more consumer choice, increasing access to health care among the uninsured, reducing costs, and improving health in general. To this end, we investigate the outcomes from recent reforms to a public health insurance program. The state of West Virginia recently redesigned its Medicaid program, providing members with a choice between a "basic" plan and an "enhanced" plan. The latter plan offers more benefits but also requires additional agreements between the patient and the state, as well as a visit to a doctor to develop a health improvement plan. These contracts were designed with the intent of providing incentives for patients to adopt healthier behaviors and to use the health care system more effectively (e.g., using the emergency room only in emergency situations).

The purpose of the reform was to create a program that was structured to "tailor the benefits to the needs of each population," unlike its predecessor plan, which "provided all services to all members" and was seen as "a one-size-fits-all approach," according to state officials. (1) Implicit in this design was the idea that beneficiaries would select the plan most advantageous to their situation. However, the reforms were surrounded by debate as to which factors would motivate self-selection into the two plans. For instance, some suggested that the healthiest individuals would choose the enhanced plan. These individuals would face the lowest costs to signing the agreements since they already would be abiding by the stipulations and would be the most motivated to use the additional resources for better nutrition, weight management, and smoking cessation provided in the enhanced plan. Alternatively, some suggested that beneficiaries would self-select into their respective plans on the basis of past health care utilization and those with relatively high demand for services would select the enhanced plan. The most contentious debates surrounded the effects of the new program on children, as a child could only be enrolled in the enhanced plan if a parent or guardian was willing to sign the additional agreements.

As of July 2009, about 14% of members were enrolled in the enhanced plan. Identifying the motivations for plan selection and the characteristics of those in each plan is essential for effective implementation of health insurance program reforms and evaluating outcomes. The goal of this paper is to determine the extent to which beneficiaries self-select into a given plan on the basis of prior health care utilization.

To assess the possibility of such self-selection, we draw information about health care utilization and plan choice from individual-level administrative enrollment and health claims data (doctor visits and prescriptions) from the West Virginia Department of Health and Human Resources. To further understand the factors affecting plan choice, we combine this administrative data with survey data that include individual and household characteristics from a stratified random sample of Medicaid members as of September 2008. …