How to deal with persistently low/high spenders in health plan payment systems?

Richard C. van Kleef*, René C.J.A. van Vliet

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review

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Abstract

Health insurance markets with community-rated premiums typically include risk adjustment (RA) to mitigate selection problems. Over the past decades, RA systems have evolved from simple demographic models to sophisticated morbidity-based models. Even the most sophisticated models, however, tend to overcompensate people with persistently low spending and undercompensate those with persistently high spending. This paper compares three methods that exploit spending-level persistence for improving health plan payment systems: (1) implementation of spending-based risk adjustors, (2) implementation of high-risk pooling for people with multiple-year high spending, and (3) indirect use of spending persistence via constrained regression. Based on incentive measures for risk selection and cost control, we conclude that a combination of the last two options can substantially outperform the first, which is currently used in the health plan payment system in the Netherlands.

Original languageEnglish
Pages (from-to)784-805
Number of pages22
JournalHealth Economics (United Kingdom)
Volume31
Issue number5
DOIs
Publication statusE-pub ahead of print - 8 Feb 2022

Bibliographical note

ACKNOWLEDGMENTS:
The authors gratefully acknowledge the valuable comments on earlier versions of this paper by Thomas McGuire, Sonja Schillo, Wynand van de Ven, Suzanne van Veen, two anonymous reviewers, the participants of the Risk Adjustment Network meeting in Portland and the participants of the Dutch advisory board for scientific research on insurer data. The authors are also grateful to the Dutch Ministry of Health, Welfare and Sports and the Association of Health Insurers for access to (anonymized) claims data. They also thank the Netherlands Institute for Health Services Research (NIVEL) for access to morbidity information from General Practitioners. This study has been approved according to the governance code of NIVEL Primary Care Database, under number NZR–00317.059. Dutch law allows the use of electronic health records for research purposes under certain conditions. According to this legislation, neither obtaining informed consent from patients nor approval by a medical ethics committee is obligatory for this type of observational studies containing no directly identifiable data (Dutch Civil Law, Article 7:458). This research did not receive any specific grant from funding agencies in the public, commercial, or not–for–profit sectors.

Publisher Copyright:
© 2022 The Authors. Health Economics published by John Wiley & Sons Ltd.

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