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How the COVID-19 pandemic can distort risk adjustment of health plan payment

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  • Richard C. Kleef

    (Erasmus School of Health Policy & Management)

  • Mieke Reuser

    (Erasmus School of Health Policy & Management
    Dutch Ministry of Health, Welfare and Sports)

Abstract

The COVID-19 pandemic has led to disruptions in healthcare utilization and spending. While some changes might persist (e.g. substitution of specialist visits by online consultations), others will be transitory (e.g. fewer surgical procedures due to cancellation of treatments). This paper discusses the implications of transitory changes in healthcare utilization and spending for risk adjustment of health plan payment. In practice, risk adjustment methodologies typically consist of two steps: (1) calibration of payment weights for a given set of risk adjusters and (2) calculation of payments to insurers by combining the calibrated weights with enrollee characteristics. In this paper, we first introduce a simple conceptual framework for analyzing the (potential) distortions from the pandemic for both steps and then provide a hypothetical illustration of how these distortions can lead to under- or overpayment of insurers. The size of these under-/overpayments depends on (1) the impact of the pandemic on patterns in utilization and spending, (2) the distribution of risk types across insurers, (3) the extent to which insurers are disproportionately affected by the pandemic, and (4) features of the risk adjustment system.

Suggested Citation

  • Richard C. Kleef & Mieke Reuser, 2021. "How the COVID-19 pandemic can distort risk adjustment of health plan payment," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 22(7), pages 1005-1016, September.
    • Handle: RePEc:spr:eujhec:v:22:y:2021:i:7:d:10.1007_s10198-021-01346-5
    DOI: 10.1007/s10198-021-01346-5
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    References listed on IDEAS

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    1. S. Veen & R. Kleef & W. Ven & R. Vliet, 2015. "Improving the prediction model used in risk equalization: cost and diagnostic information from multiple prior years," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 16(2), pages 201-218, March.
    2. Buchner, Florian & Goepffarth, Dirk & Wasem, Juergen, 2013. "The new risk adjustment formula in Germany: Implementation and first experiences," Health Policy, Elsevier, vol. 109(3), pages 253-262.
    3. Timothy J. Layton & Thomas G. McGuire & Anna D. Sinaiko, 2016. "Risk Corridors and Reinsurance in Health Insurance Marketplaces: Insurance for Insurers," American Journal of Health Economics, University of Chicago Press, vol. 2(1), pages 66-95, Winter.
    4. Timothy J. Layton & Thomas G. McGuire & Anna D. Sinaiko, 2016. "Risk Corridors and Reinsurance in Health Insurance Marketplaces: Insurance for Insurers," American Journal of Health Economics, MIT Press, vol. 2(1), pages 66-95, January.
    5. 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.
    6. Beck, Konstantin & Trottmann, Maria & Zweifel, Peter, 2010. "Risk adjustment in health insurance and its long-term effectiveness," Journal of Health Economics, Elsevier, vol. 29(4), pages 489-498, July.
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    Cited by:

    1. Schut, Frederik T & Franken, Frédérique M.E. & van der Geest, Stéphanie A. & Varkevisser, Marco, 2024. "Financing COVID-19-related health care costs in the Dutch competitive health system during 2020 and 2021: Overall experiences and policy recommendations for improving health system resilience," Health Policy, Elsevier, vol. 141(C).

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