Cream-skimming in deregulated social health insurance: evidence from Switzerland

Innovation and risk selection in deregulated social health insurance

One important motive for deregulating social health insurance is to encourage product innovation. For the first time, the cost savings achieved by non-US managed care plans that are attributable to product innovation are estimated, using a novel approach. Panel data from a major Swiss health insurer permits to infer health status, which can be used to predict health care expenditure. The econometric evidence suggests that the managed care plans benefit from risk selection effects. In the case of the health maintenance organization (HMO) plan, however, the pure innovation effect may account for as much as two-thirds of the cost advantage.

Has solidarity survived? A comparative analysis of the effect of social health insurance reform in four European countries

Social health insurance reform has evolved as an important public policy issue in several European countries. Some of the most important reform programs have been the introduction of managed competition, a shift from full retrospective reimbursement of health insurers to prospective reimbursement, an increase of private payments, and a change in the health benefits of social health insurance. The article investigates the widespread assumption that reform programs have adverse effects on solidarity in social health insurance by looking at the concrete experience of four European countries (Belgium, Germany, The Netherlands, and Switzerland) over the past decade. A distinction is made between risk solidarity and income solidarity, and the scope of solidarity is shown to have two dimensions: entitlements and membership. The analysis consists of three parts: description of the structure of health insurance of each of the four countries in the early 1990s; discussion of health insurance reform; determination of the impact on each dimension of solidarity. The findings are mixed. There are indeed some examples of solidarity having declined as the result of health insurance reform. But, more important, many examples also were found of an increase in solidarity due to health insurance reform. In some cases, reform was explicitly intended to improve solidarity. If a reform program had a negative impact on solidarity (e.g., an increase in private payments), accompanying measures often were taken to keep solidarity intact as much as possible. Thus the assumption of a negative impact as a result of health insurance reform is not confirmed.

Cream-skimming, incentives for efficiency and payment system

Reform proposals of health care systems in several countries have advocated variations of a risk adjustment/capitation system. These proposals face a serious objection: incentives to risk selection are prevalent in the system. By now, considerable literature has been devoted to finding ways of mitigating, if not eliminating, this problem, while at the same time preserving incentives to efficiency. We contribute to this debate presenting a transfer system that, under some circumstances, attains both provider efficiency and no risk selection. The transfer system extends typical linear payment systems. It can be interpreted as a fixed transfer in the beginning of the period plus an ex-post fund at the end of the period. The novelty rests in the way contributions to this fund are defined.

Access to coverage for high-risks in a competitive individual health insurance market: via premium rate restrictions or risk-adjusted premium subsidies?

A competitive market for individual health insurance tends to risk-adjusted premiums. Premium rate restrictions are often considered a tool to increase access to coverage for high-risk individuals in such a market. However, such regulation induces selection which may have several adverse effects. As an alternative approach we consider risk-adjusted premium subsidies. Empirical results of simulated premium models and subsidy formulae are presented. It is shown that sufficiently adjusted subsidies eliminate the need for premium rate restrictions and consequently avoid their adverse effects. Therefore, the subsidy approach is the preferred strategy to increase access to coverage for high-risk individuals.

Growing importance of capitation in Switzerland

Since its liberalization the Swiss health insurance market has shown risk selection activities of the insurance funds, which call for risk adjustment. Because risk selection continues to be profitable under the current risk adjustment formula, fast growing HMO and PPO plans are (mis)used to attract good risks rather than to contain costs. For fear of being replaced by one centralised fund, social health insurers are themselves proposing improvements of the risk adjustment formula, to be applied to funds. The revised formula proposed in this paper, applicable among funds for risk adjustment and to gate-keeping models to calculate fair capitation, explains 12.4% of the variance of health care expenditure, halves profits from risk selection, and uses only the (few) data that are available in Switzerland.

Managing risk selection incentives in health sector reforms

The object of the paper is to review theoretical and empirical contributions to the optimal management of risk selection incentives ('cream skimming') in health sector reforms. The trade-off between efficiency and risk selection is fostered in health sector reforms by the introduction of competitive mechanisms such as price competition or prospective payment systems. The effects of two main forms of competition in health sector reforms are observed when health insurance is mandatory: competition in the market for health insurance, and in the market for health services. Market and government failures contribute to the assessment of the different forms of risk selection employed by insurers and providers, as the effects of selection incentives on efficiency and their proposed remedies to reduce the impact of these perverse incentives. Two European (Netherlands and Spain) and two Latin American (Chile and Colombia) case studies of health sector reforms are examined in order to observe selection incentives, their effects on efficiency and costs in the health system, and regulation policies implemented in each country to mitigate incentives to 'cream skim' good risks.