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Capping Risk Adjustment?

Patrick Eugster (), Michele Sennhauser () and Peter Zweifel ()
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Patrick Eugster: Socioeconomic Institute, University of ZurichAuthor-Name: Michele Sennhauser
Michele Sennhauser: Socioeconomic Institute, University of Zurich
Peter Zweifel: Socioeconomic Institute, University of Zurich

No 915, SOI - Working Papers from Socioeconomic Institute - University of Zurich

Abstract: When premiums are community-rated, risk adjustment (RA) serves to mitigate competitive insurers� incentive to select favorable risks. However, unless fully prospective, it also undermines their incentives for efficiency. By capping its volume, one may try to counteract this tendency, exposing insurers to some financial risk. This in term runs counter the quest to refine the RA formula, which would increase RA volume. Specifically, the adjuster, �Hospitalization or living in a nursing home during the previous year� will be added in Switzerland starting 2012. This paper investigates how to minimize the opportunity cost of capping RA in terms of increased incentives for risk selection.

Keywords: Health insurance; regulation; risk adjustment; risk management (search for similar items in EconPapers)
JEL-codes: H51 I18 L51 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2009-09
New Economics Papers: this item is included in nep-hea, nep-ias, nep-reg and nep-rmg
References: View complete reference list from CitEc
Citations: View citations in EconPapers (2) Track citations by RSS feed

Published in Journal of Health Economics, 29(4), pp. 499-507, 2010

Downloads: (external link) first version, 2009 (application/pdf)

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