The Cherry Picking Problem In Medicare Advantage

A study published today in the New England Journal of Medicine finds that a growing number of health insurers are trying to recruit younger and healthier beneficiaries into their Medicare Advantage programs by offering fitness club memberships:

The study found 35.3 percent of new enrollees in a fitness membership benefit plan reported “excellent” or “very good” health, compared with 29.1 percent in the group without the benefit. The number of plans offering the memberships rose to 58 in 2008 from 4 in 2002, the researchers said.

The five largest insurers are looking to expand their roles in offering government-subsidized health plans as the number of Americans covered by them grows under the 2010 U.S. health law. In doing so, the companies may try to “cherry pick” members who are more likely to be healthy using the fitness memberships, said Amal Trivedi, an assistant professor of community health at Brown University in Providence, Rhode Island, and the author of the report released yesterday.

Gym memberships are certainly a good preventive benefit for some beneficiaries, but as Trivedi points out, they also allows insurers to skim the cream off the top and attract the healthiest and most profitable risk pool, leaving older and sicker seniors in traditional Medicare. That is precisely the problem with the GOP’s (and Ron Wyden’s) Medicare premium support proposals. It is very difficult, from a policy standpoint, to counteract private insurers’ market-driven desire to maximize returns (by trying to keep out sick and expensive applicants) with existing risk adjustment mechanisms. They are clearly less than fully effective in preventing cherry picking and any Medicare proposal that does not level the playing field by requiring companies to offer standardized benefits and preventing too much variation is asking for a serious adverse selection problem.