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Risk-Type Concentration and Efficiency Incentives: A Challenge for the Risk Adjustment Formula

Author

Listed:
  • Richard C van Kleef

    (Institute of Health Policy and Management, Erasmus University Rotterdam)

  • Konstantin Beck

    (Socioeconomic Institute, University of Zurich
    CSS Institute for Empirical Health Economics)

  • Florian Buchner

    (Carinthia University of Applied Sciences)

Abstract

An important goal of risk-adjusted capitation payments (RACPs) to competitive community-rated health plans—that may differ in coverage and/or the organisation of delivering care—is to reduce incentives for risk selection while maintaining incentives for efficiency. In most schemes, RACPs are simply based on the average observed costs in risk groups (in a prior year). We show that under this procedure, incentives for efficiency will not always be maintained: when identical risk types are concentrated in the same health plans—due to selection, specialisation or just coincidence—cost savings can be captured by the RACPs and leak away from these plans.

Suggested Citation

  • Richard C van Kleef & Konstantin Beck & Florian Buchner, 2010. "Risk-Type Concentration and Efficiency Incentives: A Challenge for the Risk Adjustment Formula," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 35(4), pages 503-520, October.
    • Handle: RePEc:pal:gpprii:v:35:y:2010:i:4:d:10.1057_gpp.2010.25
    DOI: 10.1057/gpp.2010.25
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    References listed on IDEAS

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