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Prevention and Dynamic Risk Adjustment

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Author Info

  • Karen Eggleston

    ()
    (UCLA International Institute)

  • Randall P. Ellis

    ()
    (Department of Economics, Boston University)

  • Mingshan Lu

    ()
    (University of Calgary)

Abstract

Risk adjustment deters selection and helps to assure fair and efficient payments among health insurers or capitated provider groups. However, since conventional risk adjustment allocates funds among insurers or regions according to current population health status, it does not reward — indeed, it penalizes — provider preventive efforts that improve population health. This prevention penalty of risk adjustment will become increasingly salient as inter-related trends converge — aging societies, chronic disease epidemics, use of market-based incentives and wider adoption of conventional risk adjustment. We develop a theoretical model of selection and prevention demonstrating this problem with conventional risk adjustment and suggesting a simple alternative that restores incentives for optimal prevention. Dynamic risk adjustment combines conventional risk adjustment with pay-for-performance for prevention.

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Bibliographic Info

Paper provided by Boston University - Department of Economics in its series Boston University - Department of Economics - Working Papers Series with number WP2007-023.

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Length: 25pages
Date of creation: Mar 2007
Date of revision:
Handle: RePEc:bos:wpaper:wp2007-023

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Related research

Keywords: prevention; health promotion; risk adjustment; pay-for-performance;

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References

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