Modest risk-sharing significantly reduces health plans’ incentives for service distortion

Shuli Brammli-Greenberg (), Jacob Glazer () and Ruth Waitzberg ()
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Shuli Brammli-Greenberg: Myers-JDC Brookdale Institute and The Hebrew University
Jacob Glazer: Tel Aviv University
Ruth Waitzberg: Myers-JDC Brookdale Institute, Ben-Gurion University

The European Journal of Health Economics, 2019, vol. 20, issue 9, No 7, 1359-1374

Abstract: Abstract Public payers often use payment mechanisms as a way to improve the efficiency of the healthcare system. One source of inefficiency is service distortion (SD) in which health plans over/underprovide services in order to affect the mix of their enrollees. Using Israeli data, we apply a new measure of SD to show that a mixed payment scheme, with a modest level of cost-sharing, yields a significant improvement over a pure risk-adjustment scheme. This observation implies that even though mixed systems induce overprovision of some services, their benefits far outweigh their costs.

Keywords: Service distortion; Adverse selection; Capitation; Payment mechanisms; Risk-adjustment; Risk-sharing; Managed care; Managed competition (search for similar items in EconPapers)
JEL-codes: I13 I18 (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1007/s10198-019-01102-w

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