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Can Risk Adjustment prevent Risk Selection in a Competitive Long-Term Care Insurance Market?

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Author Info

  • Piet Bakx

    (Erasmus University Rotterdam)

  • Erik Schut

    (Erasmus University Rotterdam)

  • Eddy van Doorslaer

    (Erasmus University Rotterdam)

Abstract

When public long-term care (LTC) insurance is provided by insurers, they typically lack incentives for purchasing cost-effective LTC. Providing insurers with appropriate incentives for efficiency without jeopardizing access for high-risk individuals requires, among other things, an adequate system of risk adjustment. While risk adjustment is now widely adopted in health insurance, it is unclear whether adequate risk adjustment is feasible for LTC because of its specific features. We examine the feasibility of risk adjustment for LTC insurance using a rich set of linked nationwide Dutch administrative data. Prior LTC use and demographic information are found to explain much of the variation, while prior health care expenditures are important in reducing predicted losses for subgroups of health care users. Nevertheless, incentives for risk selection against some easily identifiable subgroups persist. Moreover, using prior utilization and expenditure as risk adjusters dilutes incentives for efficiency, but using multiyear data may reduce this disadvantage.

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Bibliographic Info

Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 13-017/V.

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Date of creation: 17 Jan 2013
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Handle: RePEc:dgr:uvatin:20130017

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Web page: http://www.tinbergen.nl

Related research

Keywords: risk adjustment; long-term care; managed competition; public insurance;

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  1. Paolucci, Francesco & Schut, Erik & Beck, Konstantin & Greß, Stefan & Van De Voorde, Carine & Zmora, Irit, 2007. "Supplementary health insurance as a tool for risk-selection in mandatory basic health insurance markets," Health Economics, Policy and Law, Cambridge University Press, vol. 2(02), pages 173-192, April.
  2. Marchand, Maurice & Sato, Motohiro & Schokkaert, Erik, 2003. " Prior Health Expenditures and Risk Sharing with Insurers Competing on Quality," RAND Journal of Economics, The RAND Corporation, vol. 34(4), pages 647-69, Winter.
  3. Eric Bonsang, 2008. "Does Informal Care from Children to their Elderly Parents Substitute for Formal Care in Europe?," CREPP Working Papers 0801, Centre de Recherche en Economie Publique et de la Population (CREPP) (Research Center on Public and Population Economics) HEC-Management School, University of Liège.
  4. de Meijer, Claudine & Koopmanschap, Marc & d' Uva, Teresa Bago & van Doorslaer, Eddy, 2011. "Determinants of long-term care spending: Age, time to death or disability?," Journal of Health Economics, Elsevier, vol. 30(2), pages 425-438, March.
  5. Van Houtven, Courtney Harold & Norton, Edward C., 2004. "Informal care and health care use of older adults," Journal of Health Economics, Elsevier, vol. 23(6), pages 1159-1180, November.
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