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Should administrative costs in health insurance be included in the risk-equalization? An analysis of five countries

Author

Listed:
  • Rudy Douven

    (CPB Netherlands Bureau for Economic Policy Analysis
    Erasmus University Rotterdam)

  • Lukas Kauer

    (CSS Institute for Empirical Health Economics
    University of Zurich
    University of Lucerne)

  • Sylvia Demme

    (Federal Office for Social Security)

  • Francesco Paolucci

    (University of Newcastle
    University of Bologna)

  • Wynand Ven

    (Erasmus University Rotterdam)

  • Jürgen Wasem

    (University of Duisburg-Essen)

  • Xiaoxi Zhao

    (Boston University)

Abstract

Most countries that apply risk-equalization in their health insurance market(s) perform risk-equalization on medical claims but do not include other components of the insurance premium, such as administrative costs. Using fixed effects panel regressions from individual insurers in Australia, Germany, the Netherlands, Switzerland, and the US, we find evidence that health insurers with a high morbidity population on average have higher administrative costs. We argue that administrative costs should also be included in risk-equalization and we show that such equalization results in additional equalization payments nontrivial in size. Using examples from Germany and the US, we show how in practice policymakers can include administrative costs in risk-equalization. We are skeptical about applying risk-equalization to other components of the insurance premium, such as profits or costs related to solvency requirements of insurers.

Suggested Citation

  • Rudy Douven & Lukas Kauer & Sylvia Demme & Francesco Paolucci & Wynand Ven & Jürgen Wasem & Xiaoxi Zhao, 2022. "Should administrative costs in health insurance be included in the risk-equalization? An analysis of five countries," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 23(9), pages 1437-1453, December.
    • Handle: RePEc:spr:eujhec:v:23:y:2022:i:9:d:10.1007_s10198-022-01436-y
    DOI: 10.1007/s10198-022-01436-y
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    References listed on IDEAS

    as
    1. Rudy Douven & Katalin Katona & Frederik Schut & Victoria Shestalova, 2017. "Switching gains and health plan price elasticities: 20 years of managed competition reforms in The Netherlands," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 18(8), pages 1047-1064, November.
    2. Pinar Karaca-Mandic & Jean Abraham & Charles Phelps, 2011. "How do health insurance loading fees vary by group size?: implications for Healthcare reform," International Journal of Health Economics and Management, Springer, vol. 11(3), pages 181-207, September.
    3. A. A. Withagen-Koster & R. C. Kleef & F. Eijkenaar, 2018. "Examining unpriced risk heterogeneity in the Dutch health insurance market," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 19(9), pages 1351-1363, December.
    4. Rudy Douven & Katalin Katona & Erik Schut & Victoria Shestalova, 2017. "Switching gains and health plan price elasticities: 20 years of managed competition reforms in the Netherlands," CPB Discussion Paper 343.rdf, CPB Netherlands Bureau for Economic Policy Analysis.
    5. Luc L. Hagenaars & Niek S. Klazinga & Michael Mueller & David J. Morgan & Patrick P.T. Jeurissen, 2018. "How and why do countries differ in their governance and financing‐related administrative expenditure in health care? An analysis of OECD countries by health care system typology," International Journal of Health Planning and Management, Wiley Blackwell, vol. 33(1), pages 263-278, January.
    6. Viktor von Wyl & Konstantin Beck, 2016. "Do insurers respond to risk adjustment? A long-term, nationwide analysis from Switzerland," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 17(2), pages 171-183, March.
    7. Larjow, Eugenia, 2018. "Administrative costs in health care—A scoping review," Health Policy, Elsevier, vol. 122(11), pages 1240-1248.
    8. Ellis, Randall P., 1998. "Creaming, skimping and dumping: provider competition on the intensive and extensive margins1," Journal of Health Economics, Elsevier, vol. 17(5), pages 537-555, October.
    9. Joseph P. Newhouse, 1996. "Reimbursing Health Plans and Health Providers: Efficiency in Production versus Selection," Journal of Economic Literature, American Economic Association, vol. 34(3), pages 1236-1263, September.
    10. Rudy Douven & Katalin Katona & Erik Schut & Victoria Shestalova, 2017. "Switching gains and health plan price elasticities: 20 years of managed competition reforms in the Netherlands," CPB Discussion Paper 343, CPB Netherlands Bureau for Economic Policy Analysis.
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    Cited by:

    1. Wynand Ven & Gerrit Hamstra & Richard Kleef & Mieke Reuser & Piet Stam, 2023. "The goal of risk equalization in regulated competitive health insurance markets," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 24(1), pages 111-123, February.
    2. Douven, Rudy & Kauer, Lukas, 2023. "Falling ill raises the health insurer's administration bill," Social Science & Medicine, Elsevier, vol. 324(C).

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    More about this item

    Keywords

    Risk-equalization; Risk-equalization payments; Administrative insurance costs; Loading fee; Medical claims;
    All these keywords.

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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