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Prior Health Expenditures and Risk Sharing with Insurers Competing on Quality

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  • Marchand, Maurice
  • Sato, Motohiro
  • Schokkaert, Erik

Abstract

Insurers can exploit the heterogeneity within risk-adjustment classes to select the good risks because they have more information than the regulator on the expected expenditures of individual insurees. To counteract this cream skimming, mixed systems combining capitation and cost-based payments have been adopted that do not, however, generally use the past expenditures of insurees as a risk adjuster. In this article, two symmetric insurers compete for clients by differentiating the quality of service offered to them according to some private information about their risk. In our setting it is always welfare improving to use prior expenditures as a risk adjuster. Copyright 2003 by the RAND Corporation.

Suggested Citation

  • Marchand, Maurice & Sato, Motohiro & Schokkaert, Erik, 2003. " Prior Health Expenditures and Risk Sharing with Insurers Competing on Quality," RAND Journal of Economics, The RAND Corporation, vol. 34(4), pages 647-669, Winter.
  • Handle: RePEc:rje:randje:v:34:y:2003:i:4:p:647-69
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    Citations

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    Cited by:

    1. Mathias Kifmann & Normann Lorenz, 2011. "Optimal cost reimbursement of health insurers to reduce risk selection," Health Economics, John Wiley & Sons, Ltd., vol. 20(5), pages 532-552, May.
    2. Karen Eggleston & Randall P. Ellis & Mingshan Lu, 2007. "Prevention and Dynamic Risk Adjustment," Boston University - Department of Economics - Working Papers Series WP2007-023, Boston University - Department of Economics.
    3. Wang, Yanguo & Jaenicke, Edward C., 2005. "Pooling, Separating, and Cream-Skimming In Relative-Performance Contracts," 2005 International Congress, August 23-27, 2005, Copenhagen, Denmark 24639, European Association of Agricultural Economists.
    4. Wang, Yanguo & Jaenicke, Edward C., 2005. "Pooling, Separating, and Cream-Skimming In Relative-Performance Contracts," 2005 Annual meeting, July 24-27, Providence, RI 19522, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    5. Piet Bakx & Erik Schut & Eddy van Doorslaer, 2013. "Can Risk Adjustment prevent Risk Selection in a Competitive Long-Term Care Insurance Market?," Tinbergen Institute Discussion Papers 13-017/V, Tinbergen Institute.
    6. repec:eee:hepoli:v:121:y:2017:i:11:p:1169-1176 is not listed on IDEAS
    7. Pieter Bakx & Frederik Schut & Eddy Doorslaer, 2015. "Can universal access and competition in long-term care insurance be combined?," International Journal of Health Economics and Management, Springer, vol. 15(2), pages 185-213, June.
    8. Tsuyoshi Takahara, 2016. "Patient dumping, outlier payments, and optimal healthcare payment policy under asymmetric information," Health Economics Review, Springer, vol. 6(1), pages 1-11, December.

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