A framework for ex-ante evaluation of the potential effects of risk equalization and risk sharing in health insurance markets with regulated competition.

Many health insurance markets are organized by principles of regulated competition. Regulators of these markets typically apply risk equalization (aka risk adjustment) and risk sharing to mitigate risk selection. Risk equalization and risk sharing can have various positive and negative effects on efficiency and fairness.

Diagnostic, pharmacy-based, and self-reported health measures in risk equalization models.

Background: Current research on the added value of self-reported health measures for risk equalization modeling does not include all types of self-reported health measures; and/or is compared with a limited set of medically diagnosed or pharmacy-based diseases; and/or is limited to specific populations of high-risk individuals.

Objective: The objective of our study is to determine the predictive power of all types of self-reported health measures for prospective modeling of health care expenditures in a general population of adult Dutch sickness fund enrollees, given that pharmacy and diagnostic data from administrative records are already included in the risk equalization formula.

Research Design: We used 4 models of 2002 total, inpatient and outpatient expenditures to evaluate the separate and combined predictive ability of 2 kinds of data: (1) Pharmacy-based (PCGs) and Diagnosis-based (DCGs) Cost Groups and (2) summarized self-reported health information.

A limited-sample benchmark approach to assess and improve the performance of risk equalization models.

A new method is proposed to assess and improve the performance of risk equalization models in competitive markets for individual health insurance, where compensation is intended for variation in observed expenditures due to so-called S(ubsidy)-type risk factors but not for variation due to other, so-called N(on-subsidy)-type risk factors. Given the availability of a rich subsample of individuals for which normative expenditures, Y(NORM), can be accurately determined, we make two contributions: (a) any risk equalization scheme applied to the entire population, Y(REF), should be evaluated through its performance in the subsample, by comparing Y(REF) with Y(NORM) (not by comparing Y(REF) with observed expenditures, Y, in the entire population, as commonly done); (b) conventional risk equalization schemes can be improved by the subsample regression of Y(NORM), rather than Y, on the risk adjusters that are observable in the entire population. This new method is illustrated by an application to the 2004 Dutch risk equalization model.

The potential premium range of risk-rating in competitive markets for supplementary health insurance.

In this paper, we simulate several scenarios of the potential premium range for voluntary (supplementary) health insurance, covering benefits which might be excluded from mandatory health insurance (MI). Our findings show that, by adding risk-factors, the minimum premium decreases and the maximum increases. The magnitude of the premium range is especially substantial for benefits such as medical devices and drugs.