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Health Care Insurance: The Role of Adverse Selection

Editor’s note: The data presented below is a good example of a common principle used in designing health plans. The principle is one of adverse selection. If a prospective plan participant has specific knowledge of their medical condition they are more or less likely to enroll in the health plan. When they have specific knowledge of pending expenses the plan ceases to act like an insurance plan and acts more like a payment plan. This specific knowledge drives up the cost of the plan to all those who purchase the plan. The information below demonstrates this with Medicaid data.

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A new report shows that while the typical Medicaid enrollee receives coverage for 78% of the year, longer Medicaid coverage lowers average monthly medical costs. In 2006, the estimated average Medicaid expenses for adults were:

* $625 for those enrolled for one month

* $469 for those enrolled six months

* $333 for those enrolled for a year

Source: “IMPROVING MEDICAID’S CONTINUITY OF COVERAGE AND QUALITY OF CARE,” Association for Community Affiliated Plans (ACAP), July 2009,

http://www.communityplans.net/Portals/0/ACAP%20Docs/Improving%20Medicaid%20Final%20070209.pdf

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July 28, 2009 - Posted by | Cost, healthcare | , ,

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