Regression Toward the Mean in Medical Care Costs

As more Americans choose among insurance plans, the possibility of biased selection increases in importance. Although regression toward the mean is recognized as a common problem in evaluating social programs, it has generally been ignored in studies of biased selection. Suppose that people are included in a group simply because they had expenditures in one year 100 below the mean; that is, health status or other risk factors are not part of the selection criteria. Empirically, the expected difference in the following year is about 20 and appears to fall in each subsequent year. This pattern holds for the elderly and nonelderly. Evidence of lower pre-enrollment expenditure of prepaid group practice (PGP) enrollees can be interpreted in several ways. Under one interpretation, PGP enrollees are assumed to be a random sample conditional on pre-enrollment expenditure, such that biased selection is one fifth of estimates based on 1 year of data and one half of estimates based on 4 years of data. This article cannot resolve the issue of alternative interpretations; it only raises it.