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Incentives for risk selection and omitted variables in the risk adjustment formula


  • Erik Schokkaert
  • Carine Van De Voorde


Risk adjustment in health insurance raises the question of how to treat variables which influence health care expenditures but do not capture acceptable costs differences. We argue that these variables should be included in the explanatory model and neutralized afterwards for the computation of the premium subsidies. This explicit approach is better than the conventional approach in removing the incentives for cream-skimming. We illustrate the empirical relevancy of the problem with data for Belgium.

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  • Erik Schokkaert & Carine Van De Voorde, 2006. "Incentives for risk selection and omitted variables in the risk adjustment formula," Annals of Economics and Statistics, GENES, issue 83-84, pages 327-351.
  • Handle: RePEc:adr:anecst:y:2006:i:83-84:p:327-351

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    1. BOADWAY, Robin & LEITE-MONTEIRO, Manuel & MARCHAND, Maurice & PESTIEAU, Pierre, 2001. "Social insurance and redistribution," CORE Discussion Papers 2001041, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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    10. Helmuth Cremer & Pierre Pestieau, 1996. "Redistributive taxation and social insurance," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 3(3), pages 281-295, July.
    11. Blomqvist, A. & Johansson, P-O., 1997. "Economic efficiency and mixed public/private insurance," Journal of Public Economics, Elsevier, vol. 66(3), pages 505-516, December.
    12. Wagstaff, Adam & van Doorslaer, Eddy, 1992. "Equity in the finance of health care: Some international comparisons," Journal of Health Economics, Elsevier, vol. 11(4), pages 361-387, December.
    13. van Doorslaer, Eddy & Wagstaff, Adam & van der Burg, Hattem & Christiansen, Terkel & De Graeve, Diana & Duchesne, Inge & Gerdtham, Ulf-G & Gerfin, Michael & Geurts, Jose & Gross, Lorna, 2000. "Equity in the delivery of health care in Europe and the US," Journal of Health Economics, Elsevier, vol. 19(5), pages 553-583, September.
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