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Capping Risk Adjustment?

  • Patrick Eugster


    (Socioeconomic Institute, University of ZurichAuthor-Name: Michele Sennhauser)

  • Michele Sennhauser


    (Socioeconomic Institute, University of Zurich)

  • Peter Zweifel


    (Socioeconomic Institute, University of Zurich)

Registered author(s):

    When premiums are community-rated, risk adjustment (RA) serves to mitigate competitive insurers’ incentive to select favorable risks. However, unless fully prospective, it also undermines their incentives for efficiency. By capping its volume, one may try to counteract this tendency, exposing insurers to some financial risk. This in term runs counter the quest to refine the RA formula, which would increase RA volume. Specifically, the adjuster, ”Hospitalization or living in a nursing home during the previous year” will be added in Switzerland starting 2012. This paper investigates how to minimize the opportunity cost of capping RA in terms of increased incentives for risk selection.

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    Paper provided by Socioeconomic Institute - University of Zurich in its series SOI - Working Papers with number 0915.

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    Length: 27 pages
    Date of creation: Sep 2009
    Date of revision:
    Publication status: published in Journal of Health Economics, 29(4), pp. 499-507, 2010
    Handle: RePEc:soz:wpaper:0915
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