Scope and Incentives for Risk Selection in Health Insurance Markets With Regulated Competition: A Conceptual Framework and International Comparison.

In health insurance markets with regulated competition, regulators face the challenge of preventing risk selection. This paper provides a framework for analyzing the scope (i.e., potential actions by insurers and consumers) and incentives for risk selection in such markets. Our approach consists of three steps. First, we describe four types of risk selection: (a) selection by consumers in and out of the market, (b) selection by consumers between high- and low-value plans, (c) selection by insurers via plan design, and (d) selection by insurers via other channels such as marketing, customer service, and supplementary insurance. In a second step, we develop a conceptual framework of how regulation and features of health insurance markets affect the scope and incentives for risk selection along these four dimensions. In a third step, we use this framework to compare nine health insurance markets with regulated competition in Australia, Europe, Israel, and the United States.

The value of a QALY towards the end of life and its determinants: Experimental evidence.

OBJECTIVES: Individual and societal willingness to pay (WTP) for end-of-life medical interventions continue to be subject to considerable uncertainty. This study aims at deriving both types of WTP estimates for an extension of survival time and an improvement of quality of life amounting to a QALY. METHODS: A discrete choice experiment (DCE) involving a hypothetical novel drug for the treatment of terminal cancer involving 1529 Swiss residents was performed in 2014. In its individual setting, respondents choose between the status quo and a hypothetical drug with varying characteristics and out-of-pocket payments, adopting the perspective of a terminal cancer patient. In the societal setting, participants are asked to choose between the status quo and a social health insurance contract with and without coverage of the novel drug and a varying insurance contribution. RESULTS: In the individual setting, respondents put a higher value on their quality of life than on their survival time whereas in the societal setting, they put a higher value on extra survival time. The combination of the two extensions results in a mean individual WTP per QALY of CHF 96,150 (1 CHF = 1 USD as of 2014). Mean societal WTP for a QALY even amounts to CHF 213,500 in favor of an adult patient, CHF 255,600 for a child, and CHF 153,600 for a person aged over 70 years, respectively. While estimated societal values consistently exceed their individual counterparts, they vary considerably with respondents' socioeconomic characteristics in both settings. CONCLUSIONS: This research finds that individual WTP for an extension of survival time to one year is dominated by WTP for health-related quality of life whereas for societal WTP, it is the other way round. Both individual and societal WTP values exhibit a great deal of heterogeneity, with the latter depending on the type of beneficiary.

Improving risk-equalization in Switzerland: Effects of alternative reform proposals on reallocating public subsidies for hospitals.

The Swiss healthcare financing system is on the verge of one of its largest reforms. The Swiss parliament is currently debating how to reallocate about 20 % of total health expenditures. Swiss cantons make substantial tax-funded contributions to health expenditures by paying 55 % of hospital inpatient costs. As health insurers are fully responsible for all outpatient costs, the present system may provide unintended incentives to treat patients in inpatient settings. This paper presents and evaluates three alternative reform proposals for the reallocation of the cantonal contribution. Two proposals are currently under consideration in the Swiss parliament, suggesting either partial cost-sharing (20 %) of all healthcare costs or inclusion of cantonal contributions into the risk-equalization fund. A third option is developed in this paper, which proposes using the cantonal funds to pay a share of insurer's expenses above a high-cost threshold. The high-cost risk-sharing alternative is clearly superior: it mitigates the incentive to discriminate against sicker individuals, improves incentives for cost control, and reduces risk of loss for insurers. The paper adds results from Switzerland to an international literature on the properties of adding high-cost risk sharing to a risk equalization model.

Extreme under and overcompensation in morbidity-based health plan payments: The case of Switzerland.

In 2020, the Swiss insurer payment model will include a set of sophisticated morbidity indicators in the form of Pharmaceutical Cost Groups (PCGs), added to a payment model currently largely based on age, gender, and a crude morbidity indicator. Adding powerful risk adjustors reduces underpayment for previously highly underpaid groups but creates a new group of the highly overpaid. We characterize the diseases and patterns of health care spending in most extremely under and overpaid in the new Swiss payment model. We define extremely under and overpaid to be those in the top and bottom 1 and .1 percentiles of the distribution of spending less payment, respectively. The under and overpaid share some of the same health conditions, among them kidney disease. The highly underpaid account for a massively disproportionate share of the unexplained variance in the new payment model. Membership in the tails of the distribution of spending residuals after risk adjustment is persistent, implying that the highly over and underpaid merit special attention in design of insurer payment models.

Cost trajectories from the final life year reveal intensity of end-of-life care and can help to guide palliative care interventions.

OBJECTIVE: Exploration of healthcare utilisation patterns in the final life year to assess palliative care potential. METHODS: Retrospective cluster analyses (k-means) of anonymised healthcare expenditure (HCE) trajectories, derived from health insurance claims of a representative sample of Swiss decedents who died between 2008 and 2010 (2 age classes: 4818 <66 years, 22 691 elderly). RESULTS: 3 (<66 years) and 5 (elderly) trajectory groups were identified, whose shapes were dominated by HCE from inpatient care in hospitals and at nursing homes. In each age class, the most expensive group (average cumulative HCE for <66 years: SFr 84 295; elderly: SFr 84 941) also had the largest abundance of cancers (<66 years: 55%; elderly: 32%) and showed signs of continued treatment intensification until shortly before death. Although sizes of these high-cost groups were comparatively small (26% in younger; 6% in elderly), they contributed substantially to the end-of-life HCE in each age class (62% and 18%, respectively).As age increased, these potential target groups for palliative care gained in share among <66-year olds (from 9% in children to 28% in 60-65-year olds), but decreased from 17% (66-70-year olds) to 1% (>90-year olds) among elderly. CONCLUSIONS: Cost trajectory clustering is well suited for first-pass population screenings of groups that warrant closer inspection to improve end-of-life healthcare allocation. The Swiss data suggest that many decedents undergo intensive medical treatment until shortly before death. Investigations into the clinical circumstances and motives of patients and physicians may help to guide palliative care.

Re-insurance in the Swiss health insurance market: Fit, power, and balance.

Risk equalization mechanisms mitigate insurers' incentives to practice risk selection. On the other hand, incentives to limit healthcare spending can be distorted by risk equalization, particularly when risk equalization payments depend on realized costs instead of expected costs. In addition, cost based risk equalization mechanisms may incentivize health insurers to distort the allocation of resources among different services. The incentives to practice risk selection, to limit healthcare spending, and to distort the allocation of resources can be measured by fit, power, and balance, respectively. We apply these three measures to evaluate the risk adjustment mechanism in Switzerland. Our results suggest that it performs very well in terms of power but rather poorly in terms of fit. The latter indicates that risk selection might be a severe problem. We show that re-insurance can reduce this problem while power remains on a high level. In addition, we provide evidence that the Swiss risk equalization mechanism does not lead to imbalances across different services.

Do insurers respond to risk adjustment? A long-term, nationwide analysis from Switzerland.

Community rating in social health insurance calls for risk adjustment in order to eliminate incentives for risk selection. Swiss risk adjustment is known to be insufficient, and substantial risk selection incentives remain. This study develops five indicators to monitor residual risk selection. Three indicators target activities of conglomerates of insurers (with the same ownership), which steer enrollees into specific carriers based on applicants' risk profiles. As a proxy for their market power, those indicators estimate the amount of premium-, health care cost-, and risk-adjustment transfer variability that is attributable to conglomerates. Two additional indicators, derived from linear regression, describe the amount of residual cost differences between insurers that are not covered by risk adjustment. All indicators measuring conglomerate-based risk selection activities showed increases between 1996 and 2009, paralleling the establishment of new conglomerates. At their maxima in 2009, the indicator values imply that 56% of the net risk adjustment volume, 34% of premium variability, and 51% cost variability in the market were attributable to conglomerates. From 2010 onwards, all indicators decreased, coinciding with a pre-announced risk adjustment reform implemented in 2012. Likewise, the regression-based indicators suggest that the volume and variance of residual cost differences between insurers that are not equaled out by risk adjustment have decreased markedly since 2009 as a result of the latest reform. Our analysis demonstrates that risk-selection, especially by conglomerates, is a real phenomenon in Switzerland. However, insurers seem to have reduced risk selection activities to optimize their losses and gains from the latest risk adjustment reform.

Failure to pay for social health insurance premiums: Acts of protest or desperation?

BACKGROUND: In Switzerland, basic health insurance is mandatory for all inhabitants, but a rising number of insured have arrears in premium payments, potentially leading to coverage suspension. We aimed at characterizing insured with debt enforcement proceedings with respect to socio-demographic and health utilization aspects. METHODS: Cross-sectional analysis of 508.000 insured with basic health insurance contracts in 2013, of whom 14,000 (2.8%) with debt enforcement proceedings, from 11 Swiss cantons. Groups were characterized using logistic regression and latent class analysis. RESULTS: Insured with debt enforcement proceedings were more likely to be young, male and without dependents (partner, kids). Having no supplementary insurance and receiving partial premium subsidies was associated with an increased debt enforcement proceedings risk. Within the debt enforcement proceedings group, three subgroups were identified: 60% were young and seemingly healthy, with a below-average fraction of premium subsidy recipients (18%) and low out-of-pocket payments in prior year (median Swiss Francs 0). Two groups consisted of relatively ill elderly persons (22%, 99% of whom with chronic illnesses) or families (18%), many of whom (29% and 51%) were recipients of premium subsidies. Median out-of-pocket payments in the prior year were high (Swiss Francs 625 and 688, respectively). CONCLUSIONS: Sixty percent of premium arrears derive from young insured without apparent financial problems; 40% are owed by elderly and families, which are potentially hurt by coverage loss.

Risk adjustment in aging societies.

BACKGROUND: In Switzerland, age is the predominant driver of solidarity transfers in risk adjustment (RA). Concerns have been voiced regarding growing imbalances in cost sharing between young and old insured due to demographic changes (larger fraction of elderly >65 years and rise in average age). Particularly young adults aged 19-25 with limited incomes have to shoulder increasing solidarity burdens. Between 1996 and 2011, monthly intergenerational solidarity payments for young adults have doubled from CHF 87 to CHF 182, which corresponds to the highest absolute transfer increase of all age groups. RESULTS: By constructing models for age-specific RA growth and for calculating the lifetime sum of RA transfers we investigated the causes and consequences of demographic changes on RA payments. The models suggest that the main driver for RA increases in the past was below average health care expenditure (HCE) growth in young adults, which was only half as high (average 2% per year) compared with older adults (average 4% per year). Shifts in age group distributions were only accountable for 2% of the CHF 95 rise in RA payments. Despite rising risk adjustment debts for young insured the balance of lifetime transfers remains positive as long as HCE growth rates are greater than the discount rate used in this model (3%). Moreover, the life-cycle model predicts that the lifetime rate of return on RA payments may even be further increased by demographic changes. Nevertheless, continued growth of RA contributions may overwhelm vulnerable age groups such as young adults. We therefore propose methods to limit the burden of social health insurance for specific age groups (e.g. young adults in Switzerland) by capping solidarity payments. CONCLUSIONS: Taken together, our mathematical modelling framework helps to gain a better understanding of how demographic changes interact with risk adjustment and how redistribution of funds between age groups can be controlled without inducing further selection incentives. Those methods can help to construct more equitable systems of health financing in light of population aging.

Preconditions for efficiency and affordability in competitive healthcare markets: are they fulfilled in Belgium, Germany, Israel, the Netherlands and Switzerland?

CONTEXT: From the mid-1990s several countries have introduced elements of regulated competition in healthcare. The aim of this paper is to identify the most important preconditions for achieving efficiency and affordability under regulated competition in healthcare, and to indicate to what extent these preconditions are fulfilled in Belgium, Germany, Israel, the Netherlands and Switzerland. These experiences can be worthwhile for other countries (considering) implementing regulated competition (e.g. Australia, Czech Republic, Ireland, Russia, Slovakia, US). METHODS: We identify and discuss ten preconditions derived from the theoretical model of regulated competition and assess the extent to which each of these preconditions is fulfilled in Belgium, Germany, Israel, the Netherlands and Switzerland. FINDINGS: After more than a decade of healthcare reforms in none of these countries all preconditions are completely fulfilled. The following preconditions are least fulfilled: consumer information and transparency, contestable markets, freedom to contract and integrate, and competition regulation. The extent to which the preconditions are fulfilled differs substantially across the five countries. Despite substantial progress in the last years in improving the risk equalization systems, insurers are still confronted with substantial incentives for risk selection, in particular in Israel and Switzerland. Imperfect risk adjustment implies that governments are faced with a complex tradeoff between efficiency, affordability and selection. CONCLUSIONS: Implementing regulated competition in healthcare is complex, given the preconditions that have to be fulfilled. Moreover, since not all preconditions can be fulfilled simultaneously, tradeoffs have to be made with implications for the levels of efficiency and affordability that can be achieved. Therefore the optimal set of preconditions is not only an empirical question but ultimately also a matter of societal preferences.

Supply-side and demand-side cost sharing in deregulated social health insurance: which is more effective?

Microeconomic theory predicts that if patients are fully insured and providers are paid fee-for-service, utilization of medical services exceeds the efficient level ('moral hazard effect'). In Switzerland, both demand-side and supply-side cost sharing have been introduced to mitigate this problem. Analyzing a panel dataset of about 160,000 adults, we find both types of cost sharing to be effective in curtailing the use of medical services. However, when moral hazard mitigation is traded off against risk selection, the minimum-deductible, supply-side cost sharing option ranks first, followed by the medium-deductible demand-side alternative, making the supply-side option somewhat more effective.

Risk adjustment in health insurance and its long-term effectiveness.

This paper seeks to create new insights when judging the impact different risk adjustment schemes may have on the incentive to select risks. It distinguishes risk types with high and low profit potential and estimates long-run profits associated with risk selection in four scenarios (no risk adjustment, demographic only, including prior hospitalization, and including prior hospitalization and Pharmaceutical Cost Groups). The database covers 180,000 Swiss individuals over 8 years, 3 of which are used for model building and 5, to estimate insurers' profits due to risk selection in the four scenarios. While these profits prove to be very high without risk adjustment and still substantial with demographic risk adjustment, they become surprisingly low when the crude morbidity indicator 'prior hospitalization' is included in the formula. These results clearly indicate the need for health status-related risk adjustment in insurance markets with community rating, taking into account insurers' planning horizon.

Risk adjustment and risk selection in Europe: 6 years later.

In this paper we analyse the developments concerning risk adjustment and risk selection in Belgium, Germany, Israel, the Netherlands and Switzerland in the period 2000-2006. Since 2000 two major trends can be observed. On the one hand the risk adjustment systems have been improved, for example, by adding relevant health-based risk adjusters. On the other hand in all five countries there is evidence of increasing risk selection, which increasingly becomes a problem, in particular in Germany and Switzerland. Some potential explanations are given for these seemingly contradictory observations. Since the mid-1990s citizens in these countries can regularly switch sickness fund, which should stimulate the sickness funds to improve efficiency in health care production and to respond to consumers' preferences. When looking at managed care there are some weak signals of increasing managed care activities by individual sickness funds in all countries (except Belgium). However, with imperfect risk adjustment, such as in Israel and Switzerland, insurers will integrate their managed care activities with their selection activities, which may have adverse effects for society, even if all insurers are equally successful in selection. The conclusion is that good risk adjustment is an essential pre-condition for reaping the benefits of a competitive health insurance market. Without good risk adjustment the disadvantages of a competitive insurance market may outweigh its advantages.

Supplementary health insurance as a tool for risk-selection in mandatory basic health insurance markets.

As the share of supplementary health insurance (SI) in health care finance is likely to grow, SI may become an increasingly attractive tool for risk-selection in basic health insurance (BI). In this paper, we develop a conceptual framework to assess the probability that insurers will use SI for favourable risk-selection in BI. We apply our framework to five countries in which risk-selection via SI is feasible: Belgium, Germany, Israel, the Netherlands, and Switzerland. For each country, we review the available evidence of SI being used as selection device. We find that the probability that SI is and will be used for risk-selection substantially varies across countries. Finally, we discuss several strategies for policy makers to reduce the chance that SI will be used for risk-selection in BI markets.

Consumer mobility in social health insurance markets : a five-country comparison.

During the 1990s, the social health insurance schemes of Germany, the Netherlands, Switzerland, Belgium and Israel were significantly reformed by the introduction of freedom of choice (open enrolment) of health insurer. This was introduced alongside a system of risk adjustment to compensate health insurers for enrolees with predictable high medical expenses. Despite the similarity in the health insurance reforms in these countries, we find that both the rationale behind these reforms and their impact on consumer choice vary widely.In this article we seek to explain the observed variation in switching rates by cross-country comparison of the potential determinants of health insurer choice. We conclude that differences in choice setting, and in the net benefits of switching, offer a plausible explanation for the large differences in consumer mobility.Finally, we discuss the policy implications of our cross-country comparison. We argue that the optimal switching rate crucially depends on the goals of the reforms and the quality of the risk-adjustment system. In view of this, we conclude that switching rates are currently too low in the Netherlands, and an active government policy to encourage consumer mobility seems warranted. In Germany and Switzerland, high switching rates call for an improvement of the rather poor risk-adjustment systems. Given low switching rates in Israel and Belgium, improving risk adjustment is less urgent, but still required in the long run.

Risk adjustment in Switzerland.

In Switzerland the new law on Health Insurance, effective since 1996, introduced pro competitive changes in the market of sickness funds. The legislator expected high mobility between sickness funds of both healthy and sick insured as open enrolment was introduced with the new law. That is why the risk adjustment scheme, that was already introduced 1993, was limited until 2005. However, consumer mobility remained low and risk selection strategies are still profitable, since risk-adjustment is based only on demographic variables. This paper describes risk adjustment, consumer mobility, risk selection activities of sickness funds and the impact of imperfect risk adjustment on the development of HMO and PPO models. The paper concludes with a description of the current political and scientific discussion in Switzerland.

Risk adjustment and risk selection on the sickness fund insurance market in five European countries.

From the mid-1990s citizens in Belgium, Germany, Israel, the Netherlands and Switzerland have a guaranteed periodic choice among risk-bearing sickness funds, who are responsible for purchasing their care or providing them with medical care. The rationale of this arrangement is to stimulate the sickness funds to improve efficiency in health care production and to respond to consumers' preferences. To achieve solidarity, all five countries have implemented a system of risk-adjusted premium subsidies (or risk equalization across risk groups), along with strict regulation of the consumers' direct premium contribution to their sickness fund. In this article we present a conceptual framework for understanding risk adjustment and comparing the systems in the five countries. We conclude that in the case of imperfect risk adjustment-as is the case in all five countries in the year 2001-the sickness funds have financial incentives for risk selection, which may threaten solidarity, efficiency, quality of care and consumer satisfaction. We expect that without substantial improvements in the risk adjustment formulae, risk selection will increase in all five countries. The issue is particularly serious in Germany and Switzerland. We strongly recommend therefore that policy makers in the five countries give top priority to the improvement of the system of risk adjustment. That would enhance solidarity, cost-control, efficiency and client satisfaction in a system of competing, risk-bearing sickness funds.