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Prevention and Dynamic Risk Adjustment

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Author Info
Karen Eggleston
Randall P. Ellis
Mingshan Lu

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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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Paper provided by Department of Economics, University of Calgary in its series Working Papers with number 2007-06.

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Date of creation: 26 Oct 2007
Date of revision: 26 Oct 2007
Handle: RePEc:clg:wpaper:2007-06

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  5. Selden, Thomas M, 1998. "Risk Adjustment for Health Insurance: Theory and Implications," Journal of Risk and Uncertainty, Springer, vol. 17(2), pages 167-79, November. [Downloadable!] (restricted)
  6. Robert Nuscheler & Thomas Knaus, 2005. "Risk selection in the German public health insurance system," Health Economics, John Wiley & Sons, Ltd., vol. 14(12), pages 1253-1271. [Downloadable!]
  7. Croxson, B. & Propper, C. & Perkins, A., 2001. "Do doctors respond to financial incentives? UK family doctors and the GP fundholder scheme," Journal of Public Economics, Elsevier, vol. 79(2), pages 375-398, February. [Downloadable!] (restricted)
  8. Glazer, Jacob & McGuire, Thomas G., 2006. "Optimal quality reporting in markets for health plans," Journal of Health Economics, Elsevier, vol. 25(2), pages 295-310, March. [Downloadable!] (restricted)
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  14. Altman, Daniel & Cutler, David M & Zeckhauser, Richard J, 1998. "Adverse Selection and Adverse Retention," American Economic Review, American Economic Association, vol. 88(2), pages 122-26, May. [Downloadable!] (restricted)
  15. Avi Dor, 2004. "Optimal Price Rules, Administered Prices and Suboptimal Prevention: Evidence from a Medicare Program," Journal of Regulatory Economics, Springer, vol. 25(1), pages 81-104, January. [Downloadable!] (restricted)
  16. Van de ven, Wynand P.M.M. & Ellis, Randall P., 2000. "Risk adjustment in competitive health plan markets," Handbook of Health Economics, in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 14, pages 755-845 Elsevier. [Downloadable!] (restricted)
  17. Frederik T. Schut & Wynand P. M. M. Van de Ven, 2005. "Rationing and competition in the Dutch health-care system," Health Economics, John Wiley & Sons, Ltd., vol. 14(S1), pages S59-S74. [Downloadable!]
  18. Anupa Bir & Karen Eggleston, 2006. "Measuring Selection Incentives in Managed Care: Evidence from the Massachusetts State Employee Insurance Program," Discussion Papers Series, Department of Economics, Tufts University 0605, Department of Economics, Tufts University. [Downloadable!]
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  19. Barros, Pedro Pita, 2003. "Cream-skimming, incentives for efficiency and payment system," Journal of Health Economics, Elsevier, vol. 22(3), pages 419-443, May. [Downloadable!] (restricted)
  20. Shen, Yujing & Ellis, Randall P., 2002. "Cost-minimizing risk adjustment," Journal of Health Economics, Elsevier, vol. 21(3), pages 515-530, May. [Downloadable!] (restricted)
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  21. Eggleston, Karen, 2005. "Multitasking and mixed systems for provider payment," Journal of Health Economics, Elsevier, vol. 24(1), pages 211-223, January. [Downloadable!] (restricted)
  22. Yujing Shen & Randall P. Ellis, 2002. "How profitable is risk selection? A comparison of four risk adjustment models," Health Economics, John Wiley & Sons, Ltd., vol. 11(2), pages 165-174. [Downloadable!]
  23. Frank, Richard G. & Glazer, Jacob & McGuire, Thomas G., 2000. "Measuring adverse selection in managed health care," Journal of Health Economics, Elsevier, vol. 19(6), pages 829-854, November. [Downloadable!] (restricted)
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