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Risk adjustment in the Netherlands; an analysis of insurers' health care expenditures

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  • Rudy Douven


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    As of 2006, the Dutch healthcare system will be run by regulated competition. An important part of regulated competition is a system of risk adjustment. This paper presents an empirical analysis of the effects of risk adjustment in the Dutch social health insurance system covering the years 1991-2001. By comparing insurers' health care expenditures with their risk adjusted premiums, our analysis estimates the impact of risk adjustment over a number of years. Results indicate that the risk-adjustment system has improved substantially. Whereas in the beginning of the nineties prospective risk adjustment could explain about 20% of the variation in health care expenditure differentials between insurers, this figure rose to 55% in 2001. The explanation of the same variation after retrospective payments did not show a clear upward or downward trend, and has varied since 1995 around 85%. The remaining variation in insurers' health care expenditure differentials are determined more by structural than random factors. One such factor may be related to the low ex-ante projections of the government's total health care expenditures, which favour insurers with a population of relatively good health risks. Results show that new entrants in the Dutch health insurance market had significantly lower health care expenditures. Furthermore, economies of scale do not seem to have played a role during the sample period: the expenditures of large insurers were not significantly lower than those of the smaller insurers.

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    Paper provided by CPB Netherlands Bureau for Economic Policy Analysis in its series CPB Discussion Paper with number 39.

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    Date of creation: Oct 2004
    Handle: RePEc:cpb:discus:39
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    1. Strombom, Bruce A. & Buchmueller, Thomas C. & Feldstein, Paul J., 2002. "Switching costs, price sensitivity and health plan choice," Journal of Health Economics, Elsevier, vol. 21(1), pages 89-116, January.
    2. Schut, Frederik T. & Hassink, Wolter H. J., 2002. "Managed competition and consumer price sensitivity in social health insurance," Journal of Health Economics, Elsevier, vol. 21(6), pages 1009-1029, November.
    3. Altman, Daniel & Cutler, David M & Zeckhauser, Richard J, 1998. "Adverse Selection and Adverse Retention," American Economic Review, American Economic Association, vol. 88(2), pages 122-126, May.
    4. Van de ven, Wynand P.M.M. & Ellis, Randall P., 2000. "Risk adjustment in competitive health plan markets," Handbook of Health Economics,in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 14, pages 755-845 Elsevier.
    5. Joseph P. Newhouse, 1996. "Reimbursing Health Plans and Health Providers: Efficiency in Production versus Selection," Journal of Economic Literature, American Economic Association, vol. 34(3), pages 1236-1263, September.
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