How well does a single question about health predict the financial health of Medicare managed care plans?

CONTEXT: Responses to simple questions that predict subsequent health care utilization are of interest to both capitated health plans and the payer.
OBJECTIVE: To determine how responses to a single question about general health status predict subsequent health care expenditures.
DESIGN: Participants in the 1992 Medicare Current Beneficiary Survey were asked the following question: "In general, compared to other people your age, would you say your health is: excellent, very good, good, fair or poor?" To obtain each participant's total Medicare expenditures and number of hospitalizations in the ensuing year, we linked the responses to this question with data from the 1993 Medicare Continuous History Survey. SAMPLE: Nationally representative sample of 8775 noninstitutionalized Medicare beneficiaries 65 years of age and older. MAIN OUTCOME MEASURES: Annual age- and sex-adjusted Medicare expenditures and hospitalization rates.
RESULTS: Eighteen percent of the beneficiaries rated their health as excellent, 56% rated it as very good or good, 17% rated it as fair, and 7% rated it as poor. Medicare expenditures had a marked inverse relation to self-assessed health ratings. In the year after assessment, age- and sex-adjusted annual expenditures varied fivefold, from $8743 for beneficiaries rating their health as poor to $1656 for beneficiaries rating their health as excellent. Hospitalization rates followed the same pattern: Respondents who rated their health as poor had 675 hospitalizations per 1000 beneficiaries per year compared with 136 per 1000 for those rating their health as excellent.
CONCLUSIONS: The response to a single question about general health status strongly predicts subsequent health care utilization. Self-reports of fair or poor health identify a group of high-risk patients who may benefit from targeted interventions. Because the current Medicare capitation formula does not account for health status, health plans can maximize profits by disproportionately enrolling beneficiaries who judge their health to be good. However, they are at a competitive disadvantage if they enroll beneficiaries who view themselves as sick.