Unbiased Analysis of Today's Healthcare Issues

Laurence Baker

Written By: Jason Shafrin - May• 23•07

Laurence Baker is a health economist at Stanford’s Center for Health Policy. Much of Mr. Baker’s work has dealt with how HMOs have affected care levels. Today I will briefly review three of Baker’s articles:

HMO Penetration and the Cost of Health Care (AER 1996)

In this paper, Baker and Corts look how HMO market penetration affected health care premiums. I think the article is most pertinent to the health care atmosphere in the late 80s and early 90s when the distinction between HMOs and other insurance plans was starker than it is now.

The authors argue that there are four reasons why increased HMO penetration may affect the cost of traditional insurance.

  1. Patient Self-Selection: Healthier patients may sort into HMO leaving traditional insurers with more unhealthy patients.
  2. Physician Selection: HMOs may attract physicians who prefer a more conservative style of medicine.
  3. Promulgation of Conservative Practice Styles: A higher level of HMO penetration may influence the ‘standard of care’ prevalent in a given metropolitan area.
  4. Cost shifting. If HMOs are good negotiators, providers may simply accept low margins for HMO patients and charge even higher rates to traditional insurance plans. This argument, however, is illogical if providers are assumed to be profit maximizers.
  5. Plan characteristics. Traditional insurers may make their plans less generous in order to compete with HMOs.

Using data from 1991, the authors do find that increased HMO market share decreases premiums when the HMOs first enter the market (i.e.: HMO market share is between 0-10%). Additional HMO market penetration (i.e.: HMO market share above 10%), however, is actually found to increase health insurance premium in a local area.

Effect of HMO Market Share on Cancer Screening

The authors posit that HMOs may be more likely to screen patients for cancer since these health plans are more cost-conscious and take a longer-term view of health care. Spillovers effects non-HMO providers may occur where 1) physician practice patterns change due to an increased HMO presence, 2) patients may be more exposed to information regarding cancer screening in areas with high HMO concentration, and 3) areas with a high HMO market share may attract providers who are more likely to screen patients.

The authors use the 1996 Medical Expenditure Panel Survey-Household Component (MEPS-HC) to test their hypothesis. HMO market concentration is measure by segmenting markets into highest, middle two and lowest quartiles, as well as by using a Hirschman-Herfindahl index (HHI). The authors find that an increase in HMO market share increases the probability of breast and cervical cancer screening, but does not affect the propensity for men to get a prostate exam.

Calculating HMO Market Shares

How do Baker and colleagues calculate HMO market share? A paper studying the factors association with mammography screening has an appendix which details how the HMO market shares were calculated. In the paper, the authors find that those who were more likely to be screened were younger, had smaller families, higher education and income, had a recent Pap smear; reported breast problems; lived in an area that had more mammography facilities with reminder systems, areas with higher HMO market shares and higher screen charges.

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