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Risk adjustment and consumer choice of sickness fund in five European countries: solidarity, efficiency and quality of care Wynand P.M.M. van de Ven Professor of Health Insurance Erasmus University Rotterdam Email : vandeven@bmg.eur.nl. Five countries. Belgium Germany Israel

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Risk adjustment and consumer choice of sickness fund in five European countries: solidarity, efficiency and quality of care

Wynand P.M.M. van de Ven

Professor of Health Insurance

Erasmus University Rotterdam

Email: vandeven@bmg.eur.nl

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five countries
Five countries

Belgium

Germany

Israel

The Netherlands

Switzerland

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recent development
Recent development
  • Enlarging the consumer choice of sickness fund;
  • Increasing the financial responsibility of sickness funds.

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rationale
Rationale

The rationale is to stimulate the sickness funds to improve efficiency in health care production and to respond to consumers’ preferences.

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common problem
Common problem

In case of imperfect risk adjustment the sickness funds have financial incentives to select the predictably profitable consumers.

This selection and the resulting market segmentation may have serious adverse effects.

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agenda
Agenda:
  • Conceptual framework and rationale of good risk adjustment;
  • The practice in five European countries;
  • Discussion.

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great challenge
Great challenge

How to combine solidarity and consumer choice of sickness fund?

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Solidarity

contribution

Premium

subsidy

Sickness Fund

Consumer

Premium

Contribution

Solidarity Fund

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Solidarity Fund

Solidarity

contribution

Premium

subsidy

Sickness Fund

Consumer

Contribution*

*contribution = solidarity contribution plus premium contribution

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policy relevance of risk adjustment
Policy relevance of risk adjustment

The policy relevance of risk adjustment is that, in theory, perfectly risk-adjusted premium subsidies may combine solidarity and a competitive health insurance market.

In practice, however, perfect risk adjustment is still a long way off.

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premium rate restrictions
Premium rate restrictions

For reasons of solidarity government imposes restrictions on the variation of the premium contributions.

These restrictions create incentives for selection.

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selection
Selection
  • Actions (not including risk-rated pricing by insurers) by insurers and consumers to exploit unpriced risk heterogeneity and break pooling arrangements;
  • The outcome of these actions.

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how to prevent selection
How to prevent selection?
  • Mandatory health insurance;
  • open enrolment requirement;
  • Standardized benefits package;
  • Additional procompetitive regulation;
  • Adequate risk adjustment (or risk equalization);
  • Risk sharing between the sponsor and the insurers.

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are age and gender sufficient
Are age and gender sufficient?

If the RAPS are only based on age and gender, then an insurer will, roughly speaking, make:

  • a predictable loss of about 100% for the 10% of the population with the worst health status;
  • a predictable profit of about 25 to 40% for the healthiest half of the population.

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predictable cost variation within an age gender group
Predictable cost variation within an age-gender group

The five percent individuals with the highest health care expenditures in a year can be predicted to have total expenditures over the next four years that are twice the average expenditures within their age-gender group.

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possible forms of c s at enrollment
Possible forms of c.s. at enrollment:

1.Contracting only with selected providers;

2.Design of benefits package;

3.Insurance agent;

4.Package deal;

5.Selective advertising.

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possible forms of c s at disenrollment
Possible forms of c.s. at disenrollment

1.Low quality of care;

2.Design of benefits package;

3.Poor services;

4.Golden hand shake.

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adverse effects of cream skimming
Adverse effects of cream skimming

1.A disincentive to be responsive to the preferences of high-risk consumers;

2.Cream skimming is more attractive than improving efficiency.

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prevention of cream skimming
Prevention of cream skimming

Two major strategies to reduce cream skimming:

  • Risk adjustment (or: risk equalisation);
  • Risk sharing.

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criteria for choosing among risk adjustment models
Criteria for choosing among risk adjustment models
  • Appropriateness of incentives:
    • No incentives for selection;
    • Incentives for efficiency;
    • Incentives for health-improving activities;
    • No incentives to distort information to the sponsor.
  • Fairness:
    • No compensation for N-type risk factors;
    • No compensation for risk factors which reflect underutilization;
    • Predictive value.
  • Feasibility.

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risk adjusters
Risk-adjusters
  • Prior utilization combined with diagnostic information;
  • Disability;
  • Self-reported chronic conditions;
  • Consumer-choice of a high- or low-option plan.

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prior utilization
Prior utilization:
  • Best single predictor of an individual’s future health expenditures;
  • Two major criticisms:

1.No regard is paid to the appropriateness of the care;

2.Average relationship between prior use and subsequent cost.

Solution: Diagnostic information

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implementation problems
Implementation of Risk Adjustment in practice: very complex!

Lack of data at individual level;

Lack of data for health adjustment;

Appropriate incentives: often not used as a relevant criterion.

Implementation problems

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switchers
Switchers: 1-5 percent of the population, per year;

Most switchers are young and healthy;

risk adjusters:

age: implemented in all five countries;

health: not (yet) implemented in any of the five countries;

Small insurers are winners, large insurers are losers.

Switchers

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selection activities given open enrollment
Via supplementary health insurance;

Selective advertising;

Virtual (internet) sickness fund;

Employer-related (group) sickness fund;

Via limited provider plans (HMOs/PPOs).

Selection activities, given open enrollment

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conclusion
Conclusion

Good risk adjustment (or ex-ante risk equalization) is a necessary condition to reap the fruits of giving the consumers a choice of sickness fund.

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rationale of consumer choice of sickness fund
Rationale of consumer choice of sickness fund

In the literature “consumer choice of sickness fund”is associated with the model that government allows individual sickness funds to be a prudent buyer of care, or to “manage the care”.

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politicians must make an explicit choice
Politicians must make an explicit choice

Who is the third-party purchaser of care:

  • Government, or a cartel of sickness funds;
  • Individual risk-bearing sickness funds.

In the first option it is hard to think of any rational argument for giving consumers a periodic choice among risk-bearing sickness funds.

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