Can Risk Adjustment prevent Risk Selection in a Competitive Long-Term Care Insurance Market?

Piet Bakx, Erik Schut and Eddy Van Doorslaer
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Piet Bakx: Erasmus University Rotterdam
Erik Schut: Erasmus University Rotterdam

No 13-017/V, Tinbergen Institute Discussion Papers from Tinbergen Institute

Abstract: When public long-term care (LTC) insurance is provided by insurers, they typically lack incentives for purchasing cost-effective LTC. Providing insurers with appropriate incentives for efficiency without jeopardizing access for high-risk individuals requires, among other things, an adequate system of risk adjustment. While risk adjustment is now widely adopted in health insurance, it is unclear whether adequate risk adjustment is feasible for LTC because of its specific features. We examine the feasibility of risk adjustment for LTC insurance using a rich set of linked nationwide Dutch administrative data. Prior LTC use and demographic information are found to explain much of the variation, while prior health care expenditures are important in reducing predicted losses for subgroups of health care users. Nevertheless, incentives for risk selection against some easily identifiable subgroups persist. Moreover, using prior utilization and expenditure as risk adjusters dilutes incentives for efficiency, but using multiyear data may reduce this disadvantage.

Keywords: risk adjustment; long-term care; managed competition; public insurance (search for similar items in EconPapers)
JEL-codes: H51 I11 I13 I18 L13 (search for similar items in EconPapers)
Date: 2013-01-17
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:tin:wpaper:20130017

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