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

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, P.O. Box 1738, 3000 DR Rotterdam, the Netherlands
Konstantin Beck: [1] Socioeconomic Institute, University of Zurich, Hottingerstrasse 10, CH-8032 Zurich, Switzerland[2] CSS Institute for Empirical Health Economics, Tribschenstrasse 21, CH-6002 Lucerne, Switzerland.
Florian Buchner: Department of Health, Carinthia University of Applied Sciences, Primoschgasse 10, 9020 Klagenfurt, Austria.

The Geneva Papers on Risk and Insurance - Issues and Practice, 2010, vol. 35, issue 4, 503-520

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.

Date: 2010
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