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Capping Risk Adjustment?

Author

Listed:
  • Patrick Eugster

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

  • Michele Sennhauser

    (Socioeconomic Institute, University of Zurich)

  • Peter Zweifel

    (Socioeconomic Institute, University of Zurich)

Abstract

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.

Suggested Citation

  • Patrick Eugster & Michele Sennhauser & Peter Zweifel, 2009. "Capping Risk Adjustment?," SOI - Working Papers 0915, Socioeconomic Institute - University of Zurich.
    • Handle: RePEc:soz:wpaper:0915
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    File URL: https://www.econ.uzh.ch/apps/workingpapers/wp/wp0915.pdf
    File Function: first version, 2009
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    Citations

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    Cited by:

    1. Polk, Andreas & Schmutzler, Armin & Müller, Adrian, 2014. "Lobbying and the power of multinational firms," European Journal of Political Economy, Elsevier, vol. 36(C), pages 209-227.
    2. Michele Sennhauser, 2009. "Why the Linear Utility Function is a Risky Choice in Discrete-Choice Experiments," SOI - Working Papers 1014, Socioeconomic Institute - University of Zurich.

    More about this item

    Keywords

    Health insurance; regulation; risk adjustment; risk management;
    All these keywords.

    JEL classification:

    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • H51 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Health

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