Selection Incentives for Health Insurers in the Presence of Sophisticated Risk Adjustment
This article analyzes selection incentives for insurers in the Dutch basic health insurance market, which operates with community-rated premiums and sophisticated risk adjustment. Selection incentives result from the interplay of three market characteristics: possible actions by insurers, consumer response to these actions, and predictable variation in profitability of insurance contracts. After a qualitative analysis of the first two characteristics our primary objective is to identify the third. Using a combination of claims data (N = 16.8 million) and survey information (N = 387,195), we find substantial predictable variation in profitability. On average, people in good health are profitable, while those in poor health are unprofitable. We conclude that Dutch insurers indeed face selection incentives. A complete measure of selection incentives, however, captures the correlation between individual-level profitability and consumer response to insurer-actions. Obtaining insight in this correlation is an important direction for further research.
|health insurance, risk selection, risk equalization, risk adjustment|
|Medical Care Research and Review|
|Organisation||Health Systems and Insurance|
van Kleef, R.C, Eijkenaar, F, & van Vliet, R.C.J.A. (2019). Selection Incentives for Health Insurers in the Presence of Sophisticated Risk Adjustment. Medical Care Research and Review. doi:10.1177/1077558719825982