Mandatory pooling as a supplement to risk-adjusted capitation payments in a competitive health insurance market

Erik M. van Barneveld, Leida M. Lamers, René C. J. A. van Vliet and Wynand P. M. M. van de Ven

Social Science & Medicine, 1998, vol. 47, issue 2, 223-232

Abstract: Risk-adjusted capitation payments (RACPs) to competing health insurers are an essential element of market-oriented health care reforms in many countries. RACPs based on demographic variables only are insufficient, because they leave ample room for cream skimming. However, the implementation of improved RACPs does not appear to be straightforward. A solution might be to supplement imperfect RACPs with a form of mandatory pooling that reduces the incentives for cream skimming. In a previous paper it was concluded that high-risk pooling (HRP), is a promising supplement to RACPs. The purpose of this paper is to compare HRP with two other main variants of mandatory pooling. These variants are called excess-of-loss (EOL) and proportional pooling (PP). Each variant includes ex post compensations to insurers for some members which depend to various degrees on actually incurred costs. Therefore, these pooling variants reduce the incentives for cream skimming which are inherent in imperfect RACPs, but they also reduce the incentives for efficiency and cost containment. As a rough measure of the latter incentives we use the percentage of total costs for which an insurer is at risk. This paper analyzes which of the three main pooling variants yields the greatest reduction of incentives for cream skimming given such a percentage. The results show that HRP is the most effective of the three pooling variants.

Keywords: competitive; health; insurance; market; risk-adjusted; capitation; payments; cream; skimming; mandatory; pooling (search for similar items in EconPapers)
Date: 1998
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Citations: View citations in EconPapers (11)

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