Diabetes is a common and very costly chronic disease. There is broad-based agreement on how to manage diabetes, yet less than 40% of adults with diabetes achieve guideline-recommended levels of medical care. We investigate the reasons for this phenomenon by examining the business case for improved diabetes care from the perspective of a single health plan (HealthPartners of Minnesota). The potential benefits accruing to a health plan from diabetes disease management include medical care cost savings and higher premiums. The potential costs to the health plan derive from disease management program costs and adverse selection. We find that the implementation of diabetes disease management coincided with large health improvements. For a defined population of diabetes patients, medical care cost savings over several years were small in the closed panel medical group but moderate for the health plan overall. We find evidence that adverse selection and the timing of cost and benefits worsen the health plan business case. In addition, the payment systems, from purchaser to health plan and health plan to provider, are very weakly connected to the quality of diabetes care, further weakening the business case. Finally, overlapping provider networks create a public goods externality that limits the health plans ability to privately capture the benefits from its investments. Nonetheless, it is clear that improved diabetes care affords economic benefits to health plans as well as valuable quality of life benefits to adults with diabetes.
Risk Adjustment of Health Plan Payments to Correct Inefficient Plan Choice from Adverse Selection
