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Mandatory pooling as a supplement to risk-adjusted capitation payments in a competitive health insurance market

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  • van Barneveld, Erik M.
  • Lamers, Leida M.
  • van Vliet, René C. J. A.
  • van de Ven, Wynand P. M. M.

Abstract

Risk-adjusted capitation payments (RACPs) to competing health insurers are an essential element of market-oriented health care reforms in many countries. RACPs based on demographic variables only are insufficient, because they leave ample room for cream skimming. However, the implementation of improved RACPs does not appear to be straightforward. A solution might be to supplement imperfect RACPs with a form of mandatory pooling that reduces the incentives for cream skimming. In a previous paper it was concluded that high-risk pooling (HRP), is a promising supplement to RACPs. The purpose of this paper is to compare HRP with two other main variants of mandatory pooling. These variants are called excess-of-loss (EOL) and proportional pooling (PP). Each variant includes ex post compensations to insurers for some members which depend to various degrees on actually incurred costs. Therefore, these pooling variants reduce the incentives for cream skimming which are inherent in imperfect RACPs, but they also reduce the incentives for efficiency and cost containment. As a rough measure of the latter incentives we use the percentage of total costs for which an insurer is at risk. This paper analyzes which of the three main pooling variants yields the greatest reduction of incentives for cream skimming given such a percentage. The results show that HRP is the most effective of the three pooling variants.

Suggested Citation

  • van Barneveld, Erik M. & Lamers, Leida M. & van Vliet, René C. J. A. & van de Ven, Wynand P. M. M., 1998. "Mandatory pooling as a supplement to risk-adjusted capitation payments in a competitive health insurance market," Social Science & Medicine, Elsevier, vol. 47(2), pages 223-232, July.
    • Handle: RePEc:eee:socmed:v:47:y:1998:i:2:p:223-232
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    Citations

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    Cited by:

    1. Mathias Kifmann & Normann Lorenz, 2011. "Optimal cost reimbursement of health insurers to reduce risk selection," Health Economics, John Wiley & Sons, Ltd., vol. 20(5), pages 532-552, May.
    2. Stolper, Karel C.F. & Boonen, Lieke H.H.M. & Schut, Frederik T. & Varkevisser, Marco, 2022. "Do health insurers use target marketing as a tool for risk selection? Evidence from the Netherlands," Health Policy, Elsevier, vol. 126(2), pages 122-128.
    3. Adam Oliver, 1999. "Risk Adjusting Health Care Resource Allocations," Monograph 000452, Office of Health Economics.
    4. Thomas G. McGuire & Sonja Schillo & Richard C. van Kleef, 2018. "Reinsurance, Repayments, and Risk Adjustment in Individual Health Insurance: Germany, The Netherlands and the U.S. Marketplaces," NBER Working Papers 25374, National Bureau of Economic Research, Inc.
    5. Bryndová, Lucie & Hroboň, Pavel & Tulejová, Henrieta, 2019. "The 2018 risk-adjustment reform in the Czech Republic: Introducing Pharmacy-based Cost Groups and strengthening reinsurance," Health Policy, Elsevier, vol. 123(8), pages 700-705.
    6. Timothy J. Layton & Thomas G. McGuire, 2017. "Marketplace Plan Payment Options for Dealing with High-Cost Enrollees," American Journal of Health Economics, MIT Press, vol. 3(2), pages 165-191, Spring.
    7. van de Ven, Wynand P. M. M. & van Vliet, Rene C. J. A. & Schut, Frederik T. & van Barneveld, Erik M., 2000. "Access to coverage for high-risks in a competitive individual health insurance market: via premium rate restrictions or risk-adjusted premium subsidies?," Journal of Health Economics, Elsevier, vol. 19(3), pages 311-339, May.
    8. van Barneveld, Erik M. & Lamers, Leida M. & van Vliet, Rene C. J. A. & van de Ven, Wynand P. M. M., 2001. "Risk sharing as a supplement to imperfect capitation: a tradeoff between selection and efficiency," Journal of Health Economics, Elsevier, vol. 20(2), pages 147-168, March.
    9. Lamers, Leida M., 1998. "Risk-adjusted capitation payments: Developing a diagnostic cost groups classification for the Dutch situation," Health Policy, Elsevier, vol. 45(1), pages 15-32, July.
    10. Friedrich Breyer & Martin Heineck & Normann Lorenz, 2003. "Determinants of health care utilization by German sickness fund members ‐ with application to risk adjustment," Health Economics, John Wiley & Sons, Ltd., vol. 12(5), pages 367-376, May.

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