Fine Tuning of Health Insurance Regulation: Unhealthy Consequences for an Individual Insurer
AbstractThis paper sheds light on some unexpected consequences of health insurance regulation that may pose a big challenge to insurers’ risk management. Because mandated uniform contributions to health insurance trigger risk selection efforts risk adjustment (RA) schemes become necessary. A good deal of research into the optimal RA formula has been performed (Ellis and Van de Ven ). A recent proposal has been to add ”Hospitalization exceeding three days during the previous year” as an indicator of high risk (Beck et al. ). Applying the new formula to an individual Swiss health insurer, its payments into the RA scheme are postdicted to explode, reaching up to 13 percent of premium income. Its mistake had been to successfully implement Managed Care, resulting in low rates of hospitalization. The predicted risk management response is to extend hospital stays beyond three days, contrary to stated policy objectives also of the United States.
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Bibliographic InfoPaper provided by University of Zurich, Socioeconomic Institute in its series Working Papers with number 0916.
Length: 18 pages
Date of creation: Sep 2009
Date of revision:
Publication status: published in International Journal of the Economics of Business, 17(3), pp. 313-327, 2010
Health insurance; regulation; risk adjustment; risk management;
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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-09-19 (All new papers)
- NEP-HEA-2009-09-19 (Health Economics)
- NEP-IAS-2009-09-19 (Insurance Economics)
- NEP-REG-2009-09-19 (Regulation)
- NEP-RMG-2009-09-19 (Risk Management)
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