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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.

Suggested Citation

  • 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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