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Risk-type concentration and efficiency incentives: a challenge for the risk adjustment formula


van Kleef, R C; Beck, K; Buchner, F (2010). Risk-type concentration and efficiency incentives: a challenge for the risk adjustment formula. The Geneva Papers on Risk and Insurance - Issues and Practice, 35(4):503-520.

Abstract

An important goal of risk-adjusted capitation payments (RACPs) to competitive community-rated health plans-that may differ in coverage and/or the organisation of delivering care-is to reduce incentives for risk selection while maintaining incentives for efficiency. In most schemes, RACPs are simply based on the average observed costs in risk groups (in a prior year). We show that under this procedure, incentives for efficiency will not always be maintained: when identical risk types are concentrated in the same health plans-due to selection, specialisation or just coincidence-cost savings can be captured by the RACPs and leak away from these plans.

Abstract

An important goal of risk-adjusted capitation payments (RACPs) to competitive community-rated health plans-that may differ in coverage and/or the organisation of delivering care-is to reduce incentives for risk selection while maintaining incentives for efficiency. In most schemes, RACPs are simply based on the average observed costs in risk groups (in a prior year). We show that under this procedure, incentives for efficiency will not always be maintained: when identical risk types are concentrated in the same health plans-due to selection, specialisation or just coincidence-cost savings can be captured by the RACPs and leak away from these plans.

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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Economics
Dewey Decimal Classification:330 Economics
Language:English
Date:October 2010
Deposited On:11 Mar 2011 15:28
Last Modified:07 Dec 2017 08:01
Publisher:Palgrave Macmillan
ISSN:1018-5895
Additional Information:"Copyright of Geneva Papers on Risk & Insurance - Issues & Practice is the property of Palgrave Macmillan Ltd. and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)"
Publisher DOI:https://doi.org/10.1057/gpp.2010.25
Official URL:http://www.palgrave-journals.com/gpp/journal/v35/n4/full/gpp201025a.html

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