Glossary Term

Favorable Selection

Favorable selection in health care programs is a form of selection bias where a patient population has systemically lower health care costs than its target population, which can create payment challenges for government programs. In other words, this is a situation where many Medicare beneficiaries who cost less than average enroll in Medicare Advantage so that Medicare pays more for these beneficiaries than would have been the case if they were in Original Medicare. As an example, if Medicare Advantage (MA) plans attract enrollees with lower-than-expected costs relative to traditional fee-for-service (FFS) Medicare enrollees (with the same level of health risk), then basing MA payments on FFS data supporting higher patient spending unnecessarily increases the cost of the MA program.

Another instance of favorable selection is if a Medicare payment model attracts participating providers with lower patient costs than estimated by the model’s benchmark level of spending, then they may receive financial rewards from the model without having to improve the delivery of health care services or patient outcomes.

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