Risk sharing refers to the regulator retaining part of the risk of healthcare expenditures-an arrangement that can take a number of forms. One rationale for risk sharing is to protect plans from financial risk, e.g., due to skewness in the distribution of medical spending or due to uncertainty about how cost obligations will change in response to policy changes. Another rationale for risk sharing is to mitigate problems related to risk selection; risk sharing can also be very effective at compensating health plans for unpriced risk heterogeneity. Risk sharing introduces tradeoffs, however, primarily in the form of weakening plan incentives to control costs. The optimal risk-sharing design depends on the regulator’s goals regarding payment fit, avoidance of selection problems and incentives for cost control, and the other characteristics of the plan payment system. Some form of risk sharing for high-cost cases is generally a component of a good policy for plan payment.

Additional Metadata
Keywords High-risk pooling, Regulated competition, Reinsurance, Risk corridors, Risk sharing
Persistent URL dx.doi.org/10.1016/B978-0-12-811325-7.00004-X, hdl.handle.net/1765/126268
Citation
McGuire, T.G, & van Kleef, R.C. (2018). Risk sharing. In Risk Adjustment, Risk Sharing and Premium Regulation in Health Insurance Markets: Theory and Practice (pp. 105–131). doi:10.1016/B978-0-12-811325-7.00004-X