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High Cost Pool in a Health Status Based Risk Adjustment System – Some Conceptional and Empirical Considerations

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  • Wasem, Jürgen
  • Buchner, Florian
  • Lux, Gerald
  • Schillo, Sonja

Abstract

Competitive social health insurance systems (at least) in Western Europe have implemented systems of morbidity based risk adjustment to set a level playing field for insurers. However, many high cost insured still are heavily underfunded despite risk adjustment, leaving incentives for risk selection. In most of these health care systems, there is an ongoing debate about how to deal with such underpaid high cost cases. This study develops four distinct concepts by adding variables to risk adjustment or by setting up a high cost pool for underpaid insured besides the risk adjustment system. Their features, incentives and distributional effects are discussed. With a data set of 6 million insured, performance is demonstrated for Germany. All models achieve a substantial improvement in model fit, measured in terms of R2 as well as CPM. As the results of the various models are different in different dimensions, the trade-offs that have to be dealt with and should be addressed, when implementing a model to reduce underfunding of high cost cases.

Suggested Citation

  • Wasem, Jürgen & Buchner, Florian & Lux, Gerald & Schillo, Sonja, 2017. "High Cost Pool in a Health Status Based Risk Adjustment System – Some Conceptional and Empirical Considerations," VfS Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168122, Verein für Socialpolitik / German Economic Association.
  • Handle: RePEc:zbw:vfsc17:168122
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    References listed on IDEAS

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    1. 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.
    2. Thomas G. McGuire & Jacob Glazer, 2000. "Optimal Risk Adjustment in Markets with Adverse Selection: An Application to Managed Care," American Economic Review, American Economic Association, vol. 90(4), pages 1055-1071, September.
    3. Joseph P. Newhouse, 1996. "Policy Watch: Medicare," Journal of Economic Perspectives, American Economic Association, vol. 10(3), pages 159-167, Summer.
    4. Corinne Behrend & Florian Buchner & Michael Happich & Rolf Holle & Peter Reitmeir & Jürgen Wasem, 2007. "Risk-adjusted capitation payments: how well do principal inpatient diagnosis-based models work in the German situation? Results from a large data set," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 8(1), pages 31-39, March.
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