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Optimal cost reimbursement of health insurers to reduce risk selection

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  • Kifmann, Mathias
  • Lorenz, Normann

Abstract

In the absence of a perfect risk adjustment scheme, reimbursing health insurers' costs can reduce risk selection in community-rated health insurance markets. In this paper, we develop a model in which insurers determine the cost efficiency of health care and have incentives for risk selection. We derive the optimal cost reimbursement function which balances the incentives for cost efficiency and risk selection. For health cost data from a Swiss health insurer, we find that an optimal cost reimbursement scheme should reimburse costs only up to a limit.

Suggested Citation

  • Kifmann, Mathias & Lorenz, Normann, 2005. "Optimal cost reimbursement of health insurers to reduce risk selection," Discussion Papers, Series I 329, University of Konstanz, Department of Economics.
    • Handle: RePEc:zbw:kondp1:329
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    References listed on IDEAS

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    1. Mathias Kifmann, 2006. "Risk selection and complementary health insurance: The Swiss approach," International Journal of Health Economics and Management, Springer, vol. 6(2), pages 151-170, June.
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    7. van Barneveld, Erik M. & Lamers, Leida M. & van Vliet, Rene C. J. A. & van de Ven, Wynand P. M. M., 2001. "Risk sharing as a supplement to imperfect capitation: a tradeoff between selection and efficiency," Journal of Health Economics, Elsevier, vol. 20(2), pages 147-168, March.
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    9. Glazer, Jacob & McGuire, Thomas G., 2002. "Setting health plan premiums to ensure efficient quality in health care: minimum variance optimal risk adjustment," Journal of Public Economics, Elsevier, vol. 84(2), pages 153-173, May.
    10. 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.
    11. Selden, Thomas M., 1999. "Premium subsidies for health insurance: excessive coverage vs. adverse selection," Journal of Health Economics, Elsevier, vol. 18(6), pages 709-725, December.
    12. Erik van Barneveld & Leida Lamers & René van Vliet & Wynand van de Ven, 2000. "Ignoring small predictable profits and losses: a new approach for measuring incentives for cream skimming," Health Care Management Science, Springer, vol. 3(2), pages 131-140, February.
    13. Barros, Pedro Pita, 2003. "Cream-skimming, incentives for efficiency and payment system," Journal of Health Economics, Elsevier, vol. 22(3), pages 419-443, May.
    14. Raviv, Artur, 1979. "The Design of an Optimal Insurance Policy," American Economic Review, American Economic Association, vol. 69(1), pages 84-96, March.
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    Cited by:

    1. Bijlsma, M. & Boone, Jan & Zwart, G.T.J., 2015. "Community Rating in Health Insurance : Trade-Off Between Coverage and Selection," Other publications TiSEM f95e5efa-523c-48e2-9ea1-f, Tilburg University, School of Economics and Management.
    2. Colleen Carey, 2017. "Technological Change and Risk Adjustment: Benefit Design Incentives in Medicare Part D," American Economic Journal: Economic Policy, American Economic Association, vol. 9(1), pages 38-73, February.
    3. Mathias Kifmann & Normann Lorenz, 2004. "Der optimale "Risikopool" zur Vermeidung von Risikoselektion," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 73(4), pages 539-554.
    4. Dosis, Anastasios, 2019. "Optimal ex post risk adjustment in markets with adverse selection," Journal of Mathematical Economics, Elsevier, vol. 85(C), pages 52-59.
    5. Geruso, Michael & McGuire, Thomas G., 2016. "Tradeoffs in the design of health plan payment systems: Fit, power and balance," Journal of Health Economics, Elsevier, vol. 47(C), pages 1-19.
    6. Martina Grunow & Robert Nuscheler, 2014. "Public And Private Health Insurance In Germany: The Ignored Risk Selection Problem," Health Economics, John Wiley & Sons, Ltd., vol. 23(6), pages 670-687, June.

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    More about this item

    Keywords

    health insurance; risk selection; risk adjustment;
    All these keywords.

    JEL classification:

    • H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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