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Risk Selection and Risk Adjustment

Author

Listed:
  • Randall P. Ellis

    (Boston University)

  • Timothy J. Layton

Abstract

Risk selection, which occurs when an individual’s demand for a product is correlated with her risk, creates inefficiencies and inequalities in markets for those products and services. Studies have shown that risk selection often occurs in health care markets, especially in markets for health insurance. Risk adjustment is a method that has been developed to correct those inefficiencies by using models to calculate risk and compensate suppliers for the risk of each individual purchasing their products. These models have become more sophisticated in recent years and are currently used in the health care systems of a number of countries.

Suggested Citation

  • Randall P. Ellis & Timothy J. Layton, 2014. "Risk Selection and Risk Adjustment," Boston University - Department of Economics - Working Papers Series wp2014-011, Boston University - Department of Economics.
    • Handle: RePEc:bos:wpaper:wp2014-011
    as

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    File URL: http://blogs.bu.edu/ellisrp/files/2013/04/EllisLaytonEncyclopediaOfHealth201300409_submitted.pdf
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    Citations

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    Cited by:

    1. Geruso, Michael & McGuire, Thomas G., 2016. "Tradeoffs in the design of health plan payment systems: Fit, power and balance," Journal of Health Economics, Elsevier, vol. 47(C), pages 1-19.
    2. Martin Gaynor & Kate Ho & Robert J. Town, 2015. "The Industrial Organization of Health-Care Markets," Journal of Economic Literature, American Economic Association, vol. 53(2), pages 235-284, June.
    3. Liran Einav & Amy Finkelstein & Raymond Kluender & Paul Schrimpf, 2016. "Beyond Statistics: The Economic Content of Risk Scores," American Economic Journal: Applied Economics, American Economic Association, vol. 8(2), pages 195-224, April.
    4. Vilsa Curto & Liran Einav & Jonathan Levin & Jay Bhattacharya, 2021. "Can Health Insurance Competition Work? Evidence from Medicare Advantage," Journal of Political Economy, University of Chicago Press, vol. 129(2), pages 570-606.
    5. Daniel Montanera & Abhay Nath Mishra & T. S. Raghu, 2022. "Mitigating Risk Selection in Healthcare Entitlement Programs: A Beneficiary-Level Competitive Bidding Approach," Information Systems Research, INFORMS, vol. 33(4), pages 1221-1247, December.

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