Medicaid program choice, inertia and adverse selection

Research output: Contribution to journalArticlepeer-review

11 Scopus citations


In 2012, Kentucky implemented Medicaid managed care statewide, auto-assigned enrollees to three plans, and allowed switching. Using administrative data, we find that the state's auto-assignment algorithm most heavily weighted cost-minimization and plan balancing, and placed little weight on the quality of the enrollee-plan match. Immobility − apparently driven by health plan inertia − contributed to the success of the cost-minimization strategy, as more than half of enrollees auto-assigned to even the lowest quality plans did not opt-out. High-cost enrollees were more likely to opt-out of their auto-assigned plan, creating adverse selection. The plan with arguably the highest quality incurred the largest initial profit margin reduction due to adverse selection prior to risk adjustment, as it attracted a disproportionate share of high-cost enrollees. The presence of such selection, caused by differential degrees of mobility, raises concerns about the long run viability of the Medicaid managed care market without such risk adjustment.

Original languageEnglish
Pages (from-to)292-316
Number of pages25
JournalJournal of Health Economics
StatePublished - Dec 2017

Bibliographical note

Publisher Copyright:
© 2017 Elsevier B.V.


  • Adverse selection
  • Inertia
  • Managed care
  • Medicaid

ASJC Scopus subject areas

  • Health Policy
  • Public Health, Environmental and Occupational Health


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