TY - JOUR

T1 - Risk adjustment in health insurance and its long-term effectiveness

AU - Beck, Konstantin

AU - Trottmann, Maria

AU - Zweifel, Peter

PY - 2010/7/1

Y1 - 2010/7/1

N2 - This paper seeks to create new insights when judging the impact different risk adjustment schemes may have on the incentive to select risks. It distinguishes risk types with high and low profit potential and estimates long-run profits associated with risk selection in four scenarios (no risk adjustment, demographic only, including prior hospitalization, and including prior hospitalization and Pharmaceutical Cost Groups). The database covers 180,000 Swiss individuals over 8 years, 3 of which are used for model building and 5, to estimate insurers' profits due to risk selection in the four scenarios. While these profits prove to be very high without risk adjustment and still substantial with demographic risk adjustment, they become surprisingly low when the crude morbidity indicator 'prior hospitalization' is included in the formula. These results clearly indicate the need for health status-related risk adjustment in insurance markets with community rating, taking into account insurers' planning horizon.

AB - This paper seeks to create new insights when judging the impact different risk adjustment schemes may have on the incentive to select risks. It distinguishes risk types with high and low profit potential and estimates long-run profits associated with risk selection in four scenarios (no risk adjustment, demographic only, including prior hospitalization, and including prior hospitalization and Pharmaceutical Cost Groups). The database covers 180,000 Swiss individuals over 8 years, 3 of which are used for model building and 5, to estimate insurers' profits due to risk selection in the four scenarios. While these profits prove to be very high without risk adjustment and still substantial with demographic risk adjustment, they become surprisingly low when the crude morbidity indicator 'prior hospitalization' is included in the formula. These results clearly indicate the need for health status-related risk adjustment in insurance markets with community rating, taking into account insurers' planning horizon.

KW - Health sciences

KW - Adult

KW - Aged

KW - Aged, 80 and over

KW - Decision Making

KW - Female

KW - Hospitalization

KW - Humans

KW - Insurance Selection Bias

KW - Insurance, Health

KW - Male

KW - Managed Competition

KW - Middle Aged

KW - Models, Psychological

KW - Risk Adjustment

KW - Switzerland

UR - http://www.scopus.com/inward/record.url?scp=77954659647&partnerID=8YFLogxK

U2 - 10.1016/j.jhealeco.2010.03.009

DO - 10.1016/j.jhealeco.2010.03.009

M3 - Journal articles

C2 - 20434784

VL - 29

SP - 489

EP - 498

JO - Journal of Health Economics

JF - Journal of Health Economics

SN - 0167-6296

IS - 4

ER -