Advertisement

The European Journal of Health Economics

, Volume 20, Issue 9, pp 1359–1374 | Cite as

Modest risk-sharing significantly reduces health plans’ incentives for service distortion

  • Shuli Brammli-GreenbergEmail author
  • Jacob Glazer
  • Ruth Waitzberg
Original Paper

Abstract

Public payers often use payment mechanisms as a way to improve the efficiency of the healthcare system. One source of inefficiency is service distortion (SD) in which health plans over/underprovide services in order to affect the mix of their enrollees. Using Israeli data, we apply a new measure of SD to show that a mixed payment scheme, with a modest level of cost-sharing, yields a significant improvement over a pure risk-adjustment scheme. This observation implies that even though mixed systems induce overprovision of some services, their benefits far outweigh their costs.

Keywords

Service distortion Adverse selection Capitation Payment mechanisms Risk-adjustment Risk-sharing Managed care Managed competition 

JEL Classification

I13 I18 

Notes

Acknowledgements

An earlier version of this paper was presented at the Risk-Adjustment Network Workshop held in October 2016 in Berlin, Germany. The authors are especially grateful to Konstantin Beck, Randall Ellis, Timothy Layton, Thomas McGuire, Amir Shmueli, Wynand Van de Ven, Richard Van Kleef, and other participants in the workshop for their helpful comments and advice. The authors are also grateful to Glied Sherry, Altman Stuart, Freed Gary and Wittenberg Raphael for their constructive suggestions. This study was funded by a Grant provided by the Israel National Institute for Health Policy Research (Grant number 2012/37).

Compliance with ethical standard

Conflict of interest

The authors declare no potential conflict of interest.

References

  1. 1.
    Layton, T.J., Ellis, R.P., McGuire, T.G.: Assessing Incentives for Adverse Selection in Health Plan Payment Systems. National Bureau of Economic Research (No. w21531) (2015)Google Scholar
  2. 2.
    Geruso, M., Layton, T.J.: Selection in health insurance markets and its policy remedies. J. Econ. Perspect. 31(4), 23–50 (2017)CrossRefGoogle Scholar
  3. 3.
    Ellis, R.P., Martins, B., Zhu, W.: Demand elasticities and service selection incentives among competing private health plans. J. Health Econ. 56, 352–367 (2017)CrossRefGoogle Scholar
  4. 4.
    Glazer, J., McGuire, T.G.: Optimal risk-adjustment of health insurance premiums: an application to managed care. Am. Econ. Rev. 90(4), 1055–1071 (2000)CrossRefGoogle Scholar
  5. 5.
    Frank, R.G., Glazer, J., McGuire, T.G.: Measuring adverse selection in managed health care. J. Health Econ. 19(6), 829–854 (2000)CrossRefGoogle Scholar
  6. 6.
    Ellis, R.P., McGuire, T.G.: Predictability and predictiveness in health care spending. J. Health Econ. 26(1), 25–48 (2007)CrossRefGoogle Scholar
  7. 7.
    Ellis, Randall P., Jiang, Shenyi, Kuo, Tzu-Chun: Does service-level spending show evidence of selection across health plan types? Appl. Econ. 45(13), 1701–1712 (2013)CrossRefGoogle Scholar
  8. 8.
    McGuire, T.G., Newhouse, J.P., Normand, S.L., Shi, J., Zuvekas, S.: Assessing incentives for service-level selection in private health insurance exchanges. J. Health Econ. 35, 47–63 (2014)CrossRefGoogle Scholar
  9. 9.
    Breyer, F., Bundorf, K., Pauly, M.V.: Health care spending risk, health insurance, and payment to health plans. In: Pauly McGuire, T.G., Barros, P. (eds.) The Handbook of Health Economic, vol. 2, pp. 691–762. Elsevier, Oxford (2012)Google Scholar
  10. 10.
    Rice, N., Smith, P.C.: Capitation and risk-adjustment in health care financing: an international progress report. Milbank Q 79(1), 81–113 (2001)CrossRefGoogle Scholar
  11. 11.
    Van de Ven, W.P.M.M., Ellis, R.P.: Risk-adjustment in competitive health plan markets. In: Ellis, R.P. (ed.) Handbook of Health Economics, vol. 1, pp. 755–845. Elsevier, New York (2000)Google Scholar
  12. 12.
    Glazer, J., McGuire, T.G.: Setting health plan premiums to ensure efficient quality in health care: minimum variance optimal risk-adjustment. J. Public Econ. 84, 153–173 (2002)CrossRefGoogle Scholar
  13. 13.
    Newhouse, J.P.: Why is there a quality chasm? Health Aff. 21(4), 13–25 (2002)CrossRefGoogle Scholar
  14. 14.
    Van de Ven, W.P., Beck, K., Buchner, F., Chernichovsky, D., Gardiol, L., Holly, A., Van de Voorde, C.: Risk-adjustment and risk selection on the sickness fund insurance market in five European countries. Health Policy 65(1), 75–98 (2003)CrossRefGoogle Scholar
  15. 15.
    Van Barneveld, E.M., Lamers, L.M., Van Vliet, R.C., Van de Ven, W.P.: Risk-sharing as a supplement to imperfect capitation: a tradeoff between selection and efficiency. J. Health Econ. 20(2), 147–168 (2001)CrossRefGoogle Scholar
  16. 16.
    Van Barneveld, E.M., Van Vliet, R.C., Van de Ven, W.P.: Risk-sharing between competing health plans and sponsors. Health Aff. 20(3), 253–262 (2001)CrossRefGoogle Scholar
  17. 17.
    Newhouse, J.P.: Reimbursing health plans and health providers: efficiency in production versus selection. J. Econ. Lit. 1996, 1236–1263 (1996)Google Scholar
  18. 18.
    Schokkaert, E., Geert, D., Van De Voorde, C.: Risk-adjustment and the trade-off between efficiency and risk selection: an application of the theory of fair compensation. Health Econ. 7(5), 465–480 (1998)CrossRefGoogle Scholar
  19. 19.
    McGuire, T., van Kleef, R. (eds.): Risk-adjustment, Risk-sharing and Premium Regulation in Health Insurance Markets: Theory and Practice. Elsevier, New York (2018)Google Scholar
  20. 20.
    Van de Ven, W.P., Beck, K., Van de Voorde, C., Wasem, J., Zmora, I.: Risk-adjustment and risk selection in Europe: 6 years later. Health Policy 83(2), 162–179 (2007)PubMedGoogle Scholar
  21. 21.
    Van de Ven, W.P., Beck, K., Buchner, F., Schokkaert, E., Schut, F.E., Shmueli, A., Wasem, J.: Preconditions for efficiency and affordability in competitive healthcare markets: are they fulfilled in Belgium, Germany, Israel, The Netherlands and Switzerland? Health Policy 109(3), 226–245 (2013)CrossRefGoogle Scholar
  22. 22.
    Van de Ven, W.P., van Kleef, R.C., van Vliet, R.C.: Risk selection threatens quality of care for certain patients: lessons from Europe’s health insurance exchanges. Health Aff. 34(10), 1713–1720 (2015)CrossRefGoogle Scholar
  23. 23.
    Van Veen, S.H.C.M., Van Kleef, R.C., Van de Ven, W.P.M.M., Van Vliet, R.C.J.A.: Is there one measure-of-fit that fits all? A taxonomy and review of measures-of-fit for risk-equalization models. Med. Care Res. Rev. 72(2), 220–243 (2015)CrossRefGoogle Scholar
  24. 24.
    Layton, T., Ellis, R., McGuire, T., van Kleef, R.: Measuring efficiency of health plan payment systems in managed competition health insurance markets. J. Health Econ. 56, 237–255 (2017)CrossRefGoogle Scholar
  25. 25.
    Geruso, M., McGuire, T.G.: Tradeoffs in the design of health plan payment systems: fit, power and balance. J. Health Econ. 47, 1–19 (2016)CrossRefGoogle Scholar
  26. 26.
    Brammli-Greenberg, S., Glazer, J., Shmueli, A.: Regulated competition and health plan payment under the national health insurance law in Israel—the unfinished story. Risk-Adjustment, Risk-Sharing and Premium Regulation in Health Insurance Markets, pp. 365–395. Academic Press, New York (2018)CrossRefGoogle Scholar
  27. 27.
    Shmueli, A., Nissan-Engelcin, E.: Local availability of physicians’ services as a tool for implicit risk selection. Soc. Sci. Med. 84, 53–60 (2013)CrossRefGoogle Scholar
  28. 28.
    Hadley, J., Rosen, B., Shmueli, A.: Towards the inclusion of a health status parameter in the israeli capitation formula. RR-372-02. Myers-JDC Brookdale Institute, Jerusalem Israel (2002)Google Scholar

Copyright information

© Springer-Verlag GmbH Germany, part of Springer Nature 2019

Authors and Affiliations

  • Shuli Brammli-Greenberg
    • 1
    Email author
  • Jacob Glazer
    • 2
  • Ruth Waitzberg
    • 3
    • 4
  1. 1.Myers-JDC Brookdale Institute and The Hebrew UniversityJerusalemIsrael
  2. 2.The University of Warwick and Faculty of ManagementTel Aviv UniversityTel AvivIsrael
  3. 3.Myers-JDC Brookdale Institute, Ben-Gurion UniversityBeer-ShevaIsrael
  4. 4.Technische Universität in BerlinBerlinGermany

Personalised recommendations