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A Model of the Impact of Reimbursement Schemes on Health Plan Choice
Journal of Health Economics (1998)
  • Emmett B. Keeler
  • Grace Carter
  • Joseph P. Newhouse, Harvard University
Flat capitation (uniform prospective payments) makes enrolling healthy enrollees profitable to health plans. Plans with relatively generous benefits may attract the sick and fail through a premium spiral. We simulate a model of idealized managed competition to explore the effect on market performance of alternatives to flat capitation such as severity-adjusted capitation and reduced supply-side cost-sharing. In our model flat capitation causes severe market problems. Severity adjustment and to a lesser extent reduced supply-side cost-sharing improve market performance, but outcomes are efficient only in cases in which people bear the marginal costs of their choices.
  • Capitation,
  • Risk adjustment,
  • Adverse selection,
  • Simulation
Publication Date
June, 1998
Citation Information
Emmett B. Keeler, Grace Carter and Joseph P. Newhouse. "A Model of the Impact of Reimbursement Schemes on Health Plan Choice" Journal of Health Economics Vol. 17 Iss. 3 (1998)
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