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A limited-sample benchmark approach to assess and improve the performance of risk equalization models


  • Stam, Pieter J.A.
  • van Vliet, René C.J.A.
  • van de Ven, Wynand P.M.M.


A new method is proposed to assess and improve the performance of risk equalization models in competitive markets for individual health insurance, where compensation is intended for variation in observed expenditures due to so-called S(ubsidy)-type risk factors but not for variation due to other, so-called N(on-subsidy)-type risk factors. Given the availability of a rich subsample of individuals for which normative expenditures, YNORM, can be accurately determined, we make two contributions: (a) any risk equalization scheme applied to the entire population, YREF, should be evaluated through its performance in the subsample, by comparing YREF with YNORM (not by comparing YREF with observed expenditures, Y, in the entire population, as commonly done); (b) conventional risk equalization schemes can be improved by the subsample regression of YNORM, rather than Y, on the risk adjusters that are observable in the entire population. This new method is illustrated by an application to the 2004 Dutch risk equalization model.

Suggested Citation

  • Stam, Pieter J.A. & van Vliet, René C.J.A. & van de Ven, Wynand P.M.M., 2010. "A limited-sample benchmark approach to assess and improve the performance of risk equalization models," Journal of Health Economics, Elsevier, vol. 29(3), pages 426-437, May.
  • Handle: RePEc:eee:jhecon:v:29:y:2010:i:3:p:426-437

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    References listed on IDEAS

    1. Erik Schokkaert & Carine Van de Voorde, 2000. "Risk adjustment and the fear of markets: The case of Belgium," Health Care Management Science, Springer, vol. 3(2), pages 121-130, February.
    2. Schokkaert, Erik & Van de Voorde, Carine, 2004. "Risk selection and the specification of the conventional risk adjustment formula," Journal of Health Economics, Elsevier, vol. 23(6), pages 1237-1259, November.
    3. van de Ven, Wynand P. M. M. & van Vliet, Rene C. J. A. & Schut, Frederik T. & van Barneveld, Erik M., 2000. "Access to coverage for high-risks in a competitive individual health insurance market: via premium rate restrictions or risk-adjusted premium subsidies?," Journal of Health Economics, Elsevier, vol. 19(3), pages 311-339, May.
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    5. Hausman, Jerry, 2015. "Specification tests in econometrics," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 38(2), pages 112-134.
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    13. Richard C. van Kleef & Wynand P. M. M. van de Ven & René C. J. A. van Vliet, 2006. "A Voluntary Deductible in Social Health Insurance with Risk Equalization: "Community-Rated or Risk-Rated Premium Rebate?"," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 73(3), pages 529-550.
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    Cited by:

    1. Asthana, Sheena & Gibson, Alex, 2011. "Setting health care capitations through diagnosis-based risk adjustment: A suitable model for the English NHS?," Health Policy, Elsevier, vol. 101(2), pages 133-139, July.


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