Risk adjustment and consumer choice of sickness fund in five European countries: solidarity, efficiency and quality of c - PowerPoint PPT Presentation

Wynand P.M.M. van de Ven

Professor of Health Insurance

Erasmus University Rotterdam

Email: vandeven@bmg.eur.nl

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Belgium

Germany

Israel

The Netherlands

Switzerland

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

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

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

These restrictions create incentives for selection.

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• 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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• 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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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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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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1.Contracting only with selected providers;

2.Design of benefits package;

3.Insurance agent;

4.Package deal;

5.Selective advertising.

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1.Low quality of care;

2.Design of benefits package;

3.Poor services;

4.Golden hand shake.

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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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Two major strategies to reduce cream skimming:

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

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

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• 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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Lack of data at individual level;

Lack of data for health adjustment;

Appropriate incentives: often not used as a relevant criterion.

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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.

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Selective advertising;

Virtual (internet) sickness fund;

Employer-related (group) sickness fund;

Via limited provider plans (HMOs/PPOs).

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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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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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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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