Should administrative costs in health insurance be included in the risk-equalization? An analysis of five countries

Rudy Douven (), Lukas Kauer, Sylvia Demme, Francesco Paolucci, Wynand Ven, Jürgen Wasem and Xiaoxi Zhao
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Rudy Douven: CPB Netherlands Bureau for Economic Policy Analysis
Lukas Kauer: CSS Institute for Empirical Health Economics
Sylvia Demme: Federal Office for Social Security
Francesco Paolucci: University of Newcastle
Wynand Ven: Erasmus University Rotterdam
Jürgen Wasem: University of Duisburg-Essen
Xiaoxi Zhao: Boston University

The European Journal of Health Economics, 2022, vol. 23, issue 9, No 2, 1437-1453

Abstract: Abstract Most countries that apply risk-equalization in their health insurance market(s) perform risk-equalization on medical claims but do not include other components of the insurance premium, such as administrative costs. Using fixed effects panel regressions from individual insurers in Australia, Germany, the Netherlands, Switzerland, and the US, we find evidence that health insurers with a high morbidity population on average have higher administrative costs. We argue that administrative costs should also be included in risk-equalization and we show that such equalization results in additional equalization payments nontrivial in size. Using examples from Germany and the US, we show how in practice policymakers can include administrative costs in risk-equalization. We are skeptical about applying risk-equalization to other components of the insurance premium, such as profits or costs related to solvency requirements of insurers.

Keywords: Risk-equalization; Risk-equalization payments; Administrative insurance costs; Loading fee; Medical claims (search for similar items in EconPapers)
JEL-codes: D40 G18 I11 I13 I18 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (2)

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DOI: 10.1007/s10198-022-01436-y

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