Risk-Type Concentration and Efficiency Incentives: A Challenge for the Risk Adjustment Formula

Richard C van Kleef, Konstantin Beck () and Florian Buchner ()
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Richard C van Kleef: Institute of Health Policy and Management, Erasmus University Rotterdam
Konstantin Beck: Socioeconomic Institute, University of Zurich
Florian Buchner: Carinthia University of Applied Sciences

The Geneva Papers on Risk and Insurance - Issues and Practice, 2010, vol. 35, issue 4, No 2, 503-520

Abstract: Abstract An important goal of risk-adjusted capitation payments (RACPs) to competitive community-rated health plans—that may differ in coverage and/or the organisation of delivering care—is to reduce incentives for risk selection while maintaining incentives for efficiency. In most schemes, RACPs are simply based on the average observed costs in risk groups (in a prior year). We show that under this procedure, incentives for efficiency will not always be maintained: when identical risk types are concentrated in the same health plans—due to selection, specialisation or just coincidence—cost savings can be captured by the RACPs and leak away from these plans.

Keywords: health insurance; capitation payments; risk adjustment; efficiency (search for similar items in EconPapers)
Date: 2010
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DOI: 10.1057/gpp.2010.25

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