Question

3. What is meant by the "HMO Effect" versus "Favorable Selection" in managed care? Describe the evidence of an HMO Effect, and the evidence of Favorable Selection.

Answer 1

Ans)3) Demonstrating the complexities and contingencies involved in modeling selection dynamics in Medicare HMOs.

- Reconciling divergent study findings requires an understanding of the way in which key methodological choices may impact the results obtained.

- It explain that choice of health status measure, method of reporting results, decisions about sample composition (studying newcomers, disenrollees, and multiple years of data), and the decision whether or not to pool data across plans may all be influential.

- In particular, we suggest that the conflicting findings regarding the relationship between favorable HMO selection and market penetration may be a function of the choice of health status measure and the newcomer effect.

- Future researchers should consider these methodological issues very carefully. We believe that the optimal study design would involve a panel data estimation on a large multiyear dataset that includes sufficient numbers of HMO newcomers, disenrollees, and stayers to conduct separate analyses for each of these groups.

- The range of health status measures would include pre-enrollment utilization (measured by number of hospital days, physician visits, and use of other services rather than costs), mortality, major diagnoses, and survey report data on self-perceived health and functionality. Ideally, plan-specific analyses would be tried, though this approach might require a multistage cluster-sampling design using HMOs as one cluster level (with FFS beneficiaries drawn from the same county).

- In selecting from among possible alternatives, the tradeoffs and implications of particular choices merit reflection and acknowledgment.