Patrick Eugster () (Socioeconomic Institute, University of ZurichAuthor-Name: Michele Sennhauser) Michele Sennhauser () (Socioeconomic Institute, University of Zurich) Peter Zweifel () (Socioeconomic Institute, University of Zurich)
Abstract
When premiums are community-rated, risk adjustment (RA) serves to mitigate competitive insurers’ incentive to select favorable risks. However, unless fully prospective, it also undermines their incentives for efficiency. By capping its volume, one may try to counteract this tendency, exposing insurers to some financial risk. This in term runs counter the quest to refine the RA formula, which would increase RA volume. Specifically, the adjuster, ”Hospitalization or living in a nursing home during the previous year” will be added in Switzerland starting 2012. This paper investigates how to minimize the opportunity cost of capping RA in terms of increased incentives for risk selection.
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Paper provided by University of Zurich, Socioeconomic Institute in its series Working Papers with number
0915.
Find related papers by JEL classification: I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation H51 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Health
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