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Prior Health Expenditures and Risk Sharing with Insurers Competing on Quality

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  • Marchand, Maurice
  • Sato, Motohiro
  • Schokkaert, Erik

Abstract

Insurers can exploit the heterogeneity within risk-adjustment classes to select the good risks because they have more information than the regulator on the expected expenditures of individual insurees. To counteract this cream skimming, mixed systems combining capitation and cost-based payments have been adopted that do not, however, generally use the past expenditures of insurees as a risk adjuster. In this article, two symmetric insurers compete for clients by differentiating the quality of service offered to them according to some private information about their risk. In our setting it is always welfare improving to use prior expenditures as a risk adjuster. Copyright 2003 by the RAND Corporation.

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Bibliographic Info

Article provided by The RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 34 (2003)
Issue (Month): 4 (Winter)
Pages: 647-69

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Handle: RePEc:rje:randje:v:34:y:2003:i:4:p:647-69

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Cited by:
  1. Kifmann, Mathias & Lorenz, Normann, 2005. "Optimal cost reimbursement of health insurers to reduce risk selection," Discussion Papers, Series 1 329, University of Konstanz, Department of Economics.
  2. Piet Bakx & Erik Schut & Eddy van Doorslaer, 2013. "Can Risk Adjustment prevent Risk Selection in a Competitive Long-Term Care Insurance Market?," Tinbergen Institute Discussion Papers 13-017/V, Tinbergen Institute.
  3. Piet Bakx & Erik Schut & Eddy van Doorslaer, 2013. "Can Risk Adjustment prevent Risk Selection in a Competitive Long-Term Care Insurance Market?," Tinbergen Institute Discussion Papers 13-017/V, Tinbergen Institute.
  4. Karen Eggleston & Randall P. Ellis & Mingshan Lu, 2007. "Prevention and Dynamic Risk Adjustment," Boston University - Department of Economics - Working Papers Series WP2007-023, Boston University - Department of Economics.
  5. Wang, Yanguo & Jaenicke, Edward C., 2005. "Pooling, Separating, and Cream-Skimming In Relative-Performance Contracts," 2005 International Congress, August 23-27, 2005, Copenhagen, Denmark 24639, European Association of Agricultural Economists.
  6. Wang, Yanguo & Jaenicke, Edward C., 2005. "Pooling, Separating, and Cream-Skimming In Relative-Performance Contracts," 2005 Annual meeting, July 24-27, Providence, RI 19522, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).

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