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Journal Articles Review of Economics and Statistics Year : 2021

Performance Pay in Insurance Markets: Evidence from Medicare

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Michele Fioretti
Hongming Wang
  • Function : Author

Abstract

Public procurement bodies increasingly resort to pay-for-performance contracts to promote efficient spending. We show that firm responses to pay-for-performance can widen the inequality in accessing social services. Focusing on the quality bonus payment initiative in Medicare Advantage, we find that higher quality-rated insurers responded to bonus payments by selecting healthier enrollees with premium differences across counties. Selection is profitable because the quality rating fails to adjust for differences in enrollee health. Selection inflated the bonus payments and shifted the supply of highrated insurance to the healthiest counties, reducing access to lower-priced, higher-rated insurance in the riskiest counties.
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Dates and versions

hal-03791843 , version 1 (29-09-2022)

Licence

Attribution - NonCommercial - NoDerivatives - CC BY 4.0

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Michele Fioretti, Hongming Wang. Performance Pay in Insurance Markets: Evidence from Medicare. Review of Economics and Statistics, 2021, pp.1-45. ⟨10.1162/rest_a_01127⟩. ⟨hal-03791843⟩
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