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Fine Tuning of Health Insurance Regulation: Unhealthy Consequences for an Individual Insurer

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  • Johannes Schoder

    ()
    (Socioeconomic Institute, University of ZurichAuthor-Name: Michele Sennhauser)

  • Michele Sennhauser

    ()
    (Socioeconomic Institute, University of Zurich)

  • Peter Zweifel

    ()
    (Socioeconomic Institute, University of Zurich)

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    Abstract

    This 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 [2000]). A recent proposal has been to add ”Hospitalization exceeding three days during the previous year” as an indicator of high risk (Beck et al. [2006]). 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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    File URL: http://www.soi.uzh.ch/research/wp/2009/wp0916.pdf
    File Function: first version, 2009
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    Bibliographic Info

    Paper provided by Socioeconomic Institute - University of Zurich in its series SOI - Working Papers with number 0916.

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    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
    Handle: RePEc:soz:wpaper:0916

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    Keywords: Health insurance; regulation; risk adjustment; risk management;

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