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Optimal cost reimbursement of health insurers to reduce risk selection
Author(s) -
Kifmann Mathias,
Lorenz Normann
Publication year - 2011
Publication title -
health economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.55
H-Index - 109
eISSN - 1099-1050
pISSN - 1057-9230
DOI - 10.1002/hec.1614
Subject(s) - reimbursement , actuarial science , incentive , selection (genetic algorithm) , health care , business , health insurance , health economics , auto insurance risk selection , economics , insurance policy , microeconomics , casualty insurance , computer science , artificial intelligence , economic growth
In the absence of a perfect risk adjustment scheme, reimbursing health insurers' costs can reduce risk selection in community‐rated health insurance markets. In this paper, we develop a model in which insurers determine the cost efficiency of health care and have incentives for risk selection. We derive the optimal cost reimbursement function, which balances the incentives for cost efficiency and risk selection. For health cost data from a Swiss health insurer, we find that an optimal cost reimbursement scheme should reimburse costs only up to a threshold. Copyright © 2010 John Wiley & Sons, Ltd.