Wynand P.M.M. van de Ven

Risk adjustment in competitive health plan markets

In the 1990s many countries have chosen to use prospective payment arrangements for health plans (e.g., health insurers, sickness funds or HMOs) together with health plan competition, as a means of creating incentives to be cost conscious, while preserving quality, innovation and responsiveness to consumer preferences. Risk adjustment is an important mechanism for attenuating problems that threaten the effectiveness of this strategy for resource allocation in health care. Without adequate risk adjustment, competing health plans have incentives to avoid individuals with predictable losses and to select predictably profitable members. This selection and the resulting risk segmentation can have adverse effects in terms of access to care, quality of care and efficiency in the production of care.This chapter first provides a conceptual framework for thinking about risk adjustment. Second, it gives an overview of the progress developing risk adjustment models in recent years. Third, several forms of risk sharing are discussed, which can be used as a tool for reducing selection in case of imperfect risk adjustment. Fourth, an overview is given of the current practice of risk adjustment and risk sharing in 11 countries. Finally some directions for future research are discussed.

Universal mandatory health insurance in the Netherlands: a model for the United States?

Policy analysts consider the Netherlands health system a possible model for the United States. Since 2006 all Dutch citizens have to buy standardized individual health insurance coverage from a private insurer. Consumers have an annual choice among insurers, and insurers can selectively contract or integrate with health care providers. Subsidies make health insurance affordable for everyone. A Risk Equalization Fund compensates insurers for enrollees with predictably high medical expenses. The reform is a work in progress. So far the emphasis has been on the health insurance market. The challenge is now to successfully reform the market for the provision of health care.

Market-oriented health care reforms and policy learning in the Netherlands

In this article we analyze the evolution of market-oriented health care reforms in the Netherlands. We argue that these reforms can be characterized as policy learning within and between competing policy programs. Policy learning denotes the process by which policy makers and stakeholders deliberately adjust the goals, rules, and techniques of a given policy in response to past experiences and new information. We discern three distinctive periods. During the first period (1988-1994), the prevailing corporatist and etatist policy programs were seriously challenged by the proponents of a new market-oriented program. But when it came to political decision making and implementation, the market-oriented program soon lost its impetus because it was technically too complex and could not provide short-term solutions to meet the urgent need for cost containment. During the second period (1994-2000), the etatist program regained its previously dominant position. In parallel to a strengthening of supply and price controls, however, the government also persevered in creating the technical and institutional preconditions for regulated competition. Moreover, public discontent over waiting lists and the call for more autonomy by individual providers and insurers strengthened the alliance in favor of regulated competition. This led to the revival of the market-oriented program in a 2001 reform plan. We conclude that the odds of these new post-2001 reforms succeeding are substantially higher than in the first period due to the technical and institutional adjustments that have taken place in the past decade.

How can we prevent cream skimming in a competitive health insurance market

Recently in many countries market oriented strategies have been implemented or proposed in order to improve efficiency in health care. In several countries (e.g. the Netherlands, Australia, Germany, Israel, Switzerland and the United States of America (USA)) an essential aspect of these strategies is that competing insurers receive a risk-adjusted premium-replacing payment per insured. In return the insurers are responsible for paying for or delivering the services as described in the benefits package. The payment per insured is dependent on the risk category to which the insured belongs and provides the insurer with an incentive for efficiency. However, if the risk groups are heterogeneous, cream skimming may arise, resulting in adverse effects to society in terms of reduced (incentives for) quality and efficiency of care.

Access to coverage for high-risks in a competitive individual health insurance market: via premium rate restrictions or risk-adjusted premium subsidies?

A competitive market for individual health insurance tends to risk-adjusted premiums. Premium rate restrictions are often considered a tool to increase access to coverage for high-risk individuals in such a market. However, such regulation induces selection which may have several adverse effects. As an alternative approach we consider risk-adjusted premium subsidies. Empirical results of simulated premium models and subsidy formulae are presented. It is shown that sufficiently adjusted subsidies eliminate the need for premium rate restrictions and consequently avoid their adverse effects. Therefore, the subsidy approach is the preferred strategy to increase access to coverage for high-risk individuals.

Towards a capitation formula for competing health insurers. An empirical analysis

In many countries the concept of capitating health care insurers is receiving increasing attention. The main reason is, that capitation may induce health care insurers in a competitive environment to concentrate more on cost containment. However, if the adjusters on which capitation payments are based, are too global, there may be ample room for risk selection by the insurers whilst also an unfair distribution of funds over the insurers may result, thereby undermining the objectives of capitation. The prime motivation for the present study is, that the Dutch government, as part of proposals for a new, market oriented structure of health care system, is considering to capitate insurers on the basis of global parameters like age, gender and location. Our analysis based on panel data of some 35,000 individuals, shows that the proportion of variance in annual health care expenditures that can be predicted (R2) by such a global capitation formula, is only 0.024. This is less than of our estimate of the theoretically maximum achievable R2 which amounts to 0.138, implying the existence of abundant selection oppurtunities, e.g. on the basis of past expenditures or other health indicators. Alternative capitation formulae incorporating prior-years costs and reaching about of the maximum obtainable R2, effectively remove the profitableness of selection on the basis of past expenditures. The findings suggest, however, that selection via (chronic) health status may still be profitable to some extent. Therefore, we also analyzed data from the Dutch Health Interview Survey (N [approximate] 20,000) which comprised better health indicators. It appeared that a capitation formula based on the global adjusters mentioned above as well as three health status indicators and several background characteristics, yields an R2 of about 0.114, which probably accounts for of our estimate of the maximum obtainable R2. The main conclusion is, that in the short term information on prior expenditures, which is available in the files of most insurers and thus may be used for risk selection, should be included in the capitation formula. For the more distant duture, the formula should be expanded with indicators of chronic health status, possibly based on diagnostic information from previous, non-discretionary hospitalizations.

Risk sharing as a supplement to imperfect capitation: a tradeoff between selection and efficiency

This paper describes forms of risk sharing between insurers and the regulator in a competitive individual health insurance market with imperfectly risk-adjusted capitation payments. Risk sharing implies a reduction of an insurers incentives for selection as well as for efficiency. In a theoretical analysis, we show how the optimal extent of risk sharing may depend on the weights the regulator assigns to these effects. Some countries employ outlier or proportional risk sharing as a supplement to demographic capitation payments. Our empirical results strongly suggest that other forms of risk sharing yield better tradeoffs between selection and efficiency.

Consumer information surplus and adverse selection in competitive health insurance markets: An empirical study

If premiums for health insurance are not risk related, there exists a consumer information surplus that may result in adverse selection. Our results indicate that insurers can greatly reduce this surplus by risk-adjusting the premium. We conclude that there need not be any substantial unavoidable consumer information surplus if consumers can choose whether to take a deductible for a one- or two-year health insurance contract with otherwise identical benefits. Therefore, adverse selection need not be a problem in a competitive insurance market with risk-adjusted premiums or vouchers and with such a consumer choice of health plan.

Preconditions for efficiency and affordability in competitive healthcare markets: Are they fulfilled in Belgium, Germany, Israel, the Netherlands and Switzerland?

CONTEXT From the mid-1990s several countries have introduced elements of regulated competition in healthcare. The aim of this paper is to identify the most important preconditions for achieving efficiency and affordability under regulated competition in healthcare, and to indicate to what extent these preconditions are fulfilled in Belgium, Germany, Israel, the Netherlands and Switzerland. These experiences can be worthwhile for other countries (considering) implementing regulated competition (e.g. Australia, Czech Republic, Ireland, Russia, Slovakia, US). METHODS We identify and discuss ten preconditions derived from the theoretical model of regulated competition and assess the extent to which each of these preconditions is fulfilled in Belgium, Germany, Israel, the Netherlands and Switzerland. FINDINGS After more than a decade of healthcare reforms in none of these countries all preconditions are completely fulfilled. The following preconditions are least fulfilled: consumer information and transparency, contestable markets, freedom to contract and integrate, and competition regulation. The extent to which the preconditions are fulfilled differs substantially across the five countries. Despite substantial progress in the last years in improving the risk equalization systems, insurers are still confronted with substantial incentives for risk selection, in particular in Israel and Switzerland. Imperfect risk adjustment implies that governments are faced with a complex tradeoff between efficiency, affordability and selection. CONCLUSIONS Implementing regulated competition in healthcare is complex, given the preconditions that have to be fulfilled. Moreover, since not all preconditions can be fulfilled simultaneously, tradeoffs have to be made with implications for the levels of efficiency and affordability that can be achieved. Therefore the optimal set of preconditions is not only an empirical question but ultimately also a matter of societal preferences.

Effects of purchaser competition in the Dutch health system: Is the glass half full or half empty?

In 2006, the Dutch health insurance system was radically reformed to strengthen competition among health insurers as purchasers of health services. This article considers whether purchaser competition has improved efficiency in health-care provision. Although supply and price regulation still dominates the allocation of health services, purchaser competition has already significantly affected the provision of hospital care, pharmaceuticals and primary care, as well as efforts to gather and disseminate information about quality of care. From this perspective, the glass is half full. However, based on the crude performance indicators available, the reforms have not yet demonstrated significant effects on the performance of the Dutch health system. From this perspective the glass is half empty. The article concludes that the effectiveness of purchaser competition depends crucially on the success of ongoing efforts to improve performance indicators, product classification and the risk equalisation scheme.