Adverse Selection and Provider Networks in Medicaid Managed Care: Evidence from a Large Urban Health Care Market
In this paper, we study an example of this type of provider network distortion in a large, urban Medicaid Managed Care (MMC) market. Using an audited dataset of MMC plans’ provider networks, we observe a large MMC plan add a large cancer specialty hospital to its network in 2005 and subsequently remove it again in 2006. We exploit this natural experiment, using claims and enrollment data for Medicaid enrollees ages 0-64, to examine changes in plan enrollment and spending in response to the network change. We show that the inclusion of the specialty hospital in the plan’s network attracted a large group of beneficiaries with cancer, driving up the plan’s average enrollee cost, and we conclude that the specialty hospital may have been removed from the plan’s network due to adverse selection. These findings suggest that while MMC may bring benefits associated with competition, it may also introduce distortions related to adverse selection that limit access to specialty care.