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Risk adjustment and consumer choice of sickness fund in five European countries: solidarity, efficiency and quality of care
Wynand P.M.M. van de Ven
Professor of Health Insurance
Erasmus University Rotterdam
Email: [email protected]
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Five countries
Belgium
Germany
Israel
The Netherlands
Switzerland
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Recent development
1. Enlarging the consumer choice of sickness fund;
2. Increasing the financial responsibility of sickness funds.
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Rationale
The rationale is to stimulate the sickness funds to improve efficiency in health care production and to respond to consumers’ preferences.
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Common problem
In case of imperfect risk adjustment the sickness funds have financial incentives to select the predictably profitable consumers.
This selection and the resulting market segmentation may have serious adverse effects.
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Agenda:
1. Conceptual framework and rationale of good risk adjustment;
2. The practice in five European countries;
3. Discussion.
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Great challenge
How to combine solidarity and consumer choice of sickness fund?
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Consumer Sickness Fund
Premium Contribution
Solidaritycontribution
Premium subsidy
Solidarity Fund
FIGURE 1. EXTERNAL SUBSIDY SYSTEM(as in Belgium, Israel and the Netherlands)
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Consumer Sickness Fund
Premium subsidy
Solidarity Fund
Solidaritycontribution
Contribution*
*contribution = solidarity contribution plus premium contribution
FIGURE 2. INTERNAL SUBSIDY SYSTEM(as in Germany and Switzerland)
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Policy relevance of risk adjustment
The policy relevance of risk
adjustment is that, in theory,
perfectly risk-adjusted premium
subsidies may combine solidarity
and a competitive health
insurance market.
In practice, however, perfect risk
adjustment is still a long way off.
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Premium rate restrictions
For reasons of solidarity
government imposes restrictions
on the variation of the premium
contributions.
These restrictions create
incentives for selection.
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Selection
• Actions (not including risk-rated
pricing by insurers) by insurers
and consumers to exploit
unpriced risk heterogeneity and
break pooling arrangements;
• The outcome of these actions.
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How to prevent selection?
• Mandatory health insurance;
• open enrolment requirement;
• Standardized benefits package;
• Additional procompetitive regulation;
• Adequate risk adjustment (or risk equalization);
• Risk sharing between the sponsor and the insurers.
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Are age and gender sufficient?
If the RAPS are only based on age
and gender, then an insurer will,
roughly speaking, make:
– a predictable loss of about 100% for
the 10% of the population with the
worst health status;
– a predictable profit of about 25 to
40% for the healthiest half of the
population.
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Predictable cost variation within an age-gender group
The five percent individuals
with the highest health care
expenditures in a year can be
predicted to have total
expenditures over the next
four years that are twice the
average expenditures within
their age-gender group.
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Possible forms of c.s. at enrollment:
1.Contracting only with selected providers;
2.Design of benefits package;
3.Insurance agent;
4.Package deal;
5.Selective advertising.
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Possible forms of c.s. at disenrollment
1.Low quality of care;
2.Design of benefits
package;
3.Poor services;
4.Golden hand shake.
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Adverse effects of cream skimming
1.A disincentive to be responsive to the preferences of high-risk consumers;
2.Cream skimming is more attractive than improving efficiency.
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Prevention of cream skimming
Two major strategies to reduce cream skimming:
1. Risk adjustment (or: risk equalisation);
2. Risk sharing.
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Criteria for choosing among risk adjustment models
• Appropriateness of incentives:– No incentives for selection;– Incentives for efficiency;– Incentives for health-improving
activities;– No incentives to distort information to
the sponsor.
• Fairness:– No compensation for N-type risk
factors;– No compensation for risk factors
which reflect underutilization;– Predictive value.
• Feasibility.
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Risk-adjusters
• Prior utilization combined with diagnostic information;
• Disability;
• Self-reported chronic conditions;
• Consumer-choice of a high- or low-option plan.
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Prior utilization:
• Best single predictor of an individual’s future health expenditures;
• Two major criticisms:1.No regard is paid to the
appropriateness of the care;2.Average relationship between
prior use and subsequent cost.
Solution: Diagnostic information
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The practice of risk-adjustment and risk-sharing in 5 countries
Belgium Germany Israel Netherlands Switzerland
Risk-adjusters
age/genderregiondisabilityunemploy-ment mortality
age/genderdisability
Age age/genderregiondisability
age/genderregion
Risk-sharing
Proportionalrisk-sharing,at least 85%
no Severediseases(6 percentofexpenses)
outlier risk-sharing &ProportionalRisk-sharing
no
Openenrollmenteverymonth/…/year
quarter year half year year half year
Year ofimplementation
1995 1994 1995 1991 1993
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Implementation problems
• Implementation of Risk Adjustment in practice: very complex!
• Lack of data at individual level;
• Lack of data for health adjustment;
• Appropriate incentives: often not used as a relevant criterion.
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Switchers
• Switchers: 1-5 percent of the population, per year;
• Most switchers are young and healthy;
• risk adjusters:– age: implemented in all five
countries;– health: not (yet) implemented in
any of the five countries;
• Small insurers are winners, large insurers are losers.
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Is selection a problem?
Belgium Germany Israel Netherlands Switzerland
Financial risk
7.5% 100% 94% 36% 100%
Number of sickness funds
6 300 4 25 98
Selection? NO YES NO Increasing YES
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Selection activities, given open enrollment
• Via supplementary health insurance;
• Selective advertising;• Virtual (internet) sickness
fund;• Employer-related (group)
sickness fund;• Via limited provider plans
(HMOs/PPOs).
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Conclusion
Good risk adjustment (or ex-ante risk equalization) is a necessary condition to reap the fruits of giving the consumers a choice of sickness fund.
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Rationale of consumer choice of sickness fund
In the literature “consumer choice of sickness fund”is associated with the model that government allows individual sickness funds to be a prudent buyer of care, or to “manage the care”.
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Politicians must make an explicit choice
Who is the third-party purchaser of care:
1. Government, or a cartel of sickness funds;
2. Individual risk-bearing sickness funds.
In the first option it is hard to think of any rational argument for giving consumers a periodic choice among risk-bearing sickness funds.
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