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Re-insurance in the Swiss health insurance market: Fit, power, and balance

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  • Schmid, Christian P.R.
  • Beck, Konstantin

Abstract

Risk equalization mechanisms mitigate insurers’ incentives to practice risk selection. On the other hand, incentives to limit healthcare spending can be distorted by risk equalization, particularly when risk equalization payments depend on realized costs instead of expected costs. In addition, cost based risk equalization mechanisms may incentivize health insurers to distort the allocation of resources among different services. The incentives to practice risk selection, to limit healthcare spending, and to distort the allocation of resources can be measured by fit, power, and balance, respectively. We apply these three measures to evaluate the risk adjustment mechanism in Switzerland. Our results suggest that it performs very well in terms of power but rather poorly in terms of fit. The latter indicates that risk selection might be a severe problem. We show that re-insurance can reduce this problem while power remains on a high level. In addition, we provide evidence that the Swiss risk equalization mechanism does not lead to imbalances across different services.

Suggested Citation

  • Schmid, Christian P.R. & Beck, Konstantin, 2016. "Re-insurance in the Swiss health insurance market: Fit, power, and balance," Health Policy, Elsevier, vol. 120(7), pages 848-855.
    • Handle: RePEc:eee:hepoli:v:120:y:2016:i:7:p:848-855
    DOI: 10.1016/j.healthpol.2016.04.016
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    References listed on IDEAS

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    1. Wynand P. M. M. Ven & Richard C. Kleef, 2025. "A critical review of the use of R2 in risk equalization research," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 26(3), pages 363-375, April.
    2. Beck, Konstantin & Kauer, Lukas & McGuire, Thomas G. & Schmid, Christian P.R., 2020. "Improving risk-equalization in Switzerland: Effects of alternative reform proposals on reallocating public subsidies for hospitals," Health Policy, Elsevier, vol. 124(12), pages 1363-1367.
    3. Kauer, Lukas & McGuire, Thomas G. & Beck, Konstantin, 2020. "Extreme under and overcompensation in morbidity-based health plan payments: The case of Switzerland," Health Policy, Elsevier, vol. 124(1), pages 61-68.
    4. Timothy J. Layton & Thomas G. McGuire, 2017. "Marketplace Plan Payment Options for Dealing with High-Cost Enrollees," American Journal of Health Economics, University of Chicago Press, vol. 3(2), pages 165-191, Spring.
    5. Thomas G. McGuire & Sonja Schillo & Richard C. van Kleef, 2018. "Reinsurance, Repayments, and Risk Adjustment in Individual Health Insurance: Germany, The Netherlands and the U.S. Marketplaces," NBER Working Papers 25374, National Bureau of Economic Research, Inc.

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    JEL classification:

    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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