City Research Online

Abstract

Risk equalization schemes, which transfer money to/from insurers that have above/below average risks, are a fundamental tool in regulated health insurance markets in many countries. Risk sharing (the transfer of some responsibility for costs from a plan to the regulator or the overall insurance market), are an additional method of insulating insurers who attract higher-than-average risks. This paper proposes, implements and quantifies incorporating risk sharing within a risk equalization scheme that can be applied in a data-poor context. Using Chile's private health insurance market as case study, we show that modest amount of risk sharing greatly improves fit even in simple demographic-based risk equalization. Expanding the model's formula to include morbidity-based adjustors and risk sharing redirects compensations at insurer level and reduces opportunity to engage in profitable risk selection at the group level. Our emphasis on feasibility may make alternatives proposed attractive to countries facing data-availability constraints.

Publication Type:	Article
Additional Information:	This is the peer reviewed version of the following article: Henriquez, J., Iommi, M., McGuire, T., Mentzakis, E., & Paolucci, F. (2023). Designing feasible and effective health plan payments in countries with data availability constraints. Journal of Risk and Insurance, 90, 33– 57, which has been published in final form at https://doi.org/10.1111/jori.12372. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Use of Self-Archived Versions. This article may not be enhanced, enriched or otherwise transformed into a derivative work, without express permission from Wiley or by statutory rights under applicable legislation. Copyright notices must not be removed, obscured or modified. The article must be linked to Wiley’s version of record on Wiley Online Library and any embedding, framing or otherwise making available the article or pages thereof by third parties from platforms, services and websites other than Wiley Online Library must be prohibited.
Publisher Keywords:	risk equalization; diagnostic groups; risk sharing; performance fit; risk selection
Subjects:	H Social Sciences > HC Economic History and Conditions H Social Sciences > HD Industries. Land use. Labor > HD61 Risk Management R Medicine > RA Public aspects of medicine > RA0421 Public health. Hygiene. Preventive Medicine
Departments:	School of Policy & Global Affairs > Economics

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