Many countries allow private plans to administer health insurance benefits but with restrictions on premiums and with the potential for risk adjusted government payments based on the health of a health plan pool For instance, Belgium , Germany, Israel, the Netherlands and Switzerland all have mandatory health insurance schemes; Ireland and Australia have voluntary health insurance schemes with premium controls and risk adjustment as does the United States’ Medicare Advantage and health insurance exchange marketplaces. A paper by van Kleef and van Vliet (2022) examines the Dutch health insurance system of managed competition and describes 4 mechnaisms through which health plans can engage in risk selection to generate rents. First, some background on the Dutch health system:
The Netherlands has organized its basic health insurance scheme according to the model of regulated competition (van de Ven et al., 2013). This model combines competition among health insurers and among healthcare providers with specific regulation to protect public objectives such as individual accessibility and affordability of coverage (Enthoven, 2012). In this model, competition is driven by free consumer choice of insurance plan (which puts insurers in competition) and freedom for insurers to decide where and by whom medical treatments are provided (which puts healthcare providers in competition). In this system, insurers fulfill a key role in improving social welfare: at the insurance market, they are supposed to respond to consumer preferences; at the healthcare market they are supposed to improve the efficiency of care by applying managed care tools such as selective contracting of providers, innovative provider payment methods and utilization management.
On the “regulation” side, the basic health insurance scheme is subject to a standardized benefits package in terms of medical services (such as primary care and pharmaceutical care), an insurance mandate, open enrollment, community-rating per health plan, and an RA [risk adjustment] system. Given the community-rated premium, the primary goal of the RA system is to reduce selection incentives while maintaining incentives for insurers to control costs.
Without risk adjustment, plans would be incentivized to find ways to avoid providing coverage for high-cost individuals. In the Netherlands, three separate models are used: one for physical or somatic care, one for mental care and and one for out-of-pocket spending (due to the mandatory €385 deductible per adult per year. Even with risk adjustment, health plans in the Netherlands are able to engage in risk selection. The authors describe four potential mechanisms.
- Network design and utilization management. If health plans contract with high quality physicians for expensive diseases, patients with these diseases may come to their plan. Thus, they may try to use a provider network with lower quality care for high cost conditions (or high cost subtypes within risk adjustment categories).
- Deductible setting. Individuals could voluntarily choose a higher deductible to lower their premiums through “premium rebates”. As this approach is more attractive to healthier individuals, plans. Further, individuals can change their deductible each year which could lead to selection drive premium variation.
- Marketing and customer service. Health insurers may try to market to healthier individuals and provide them with more perks compared to those who are less healthy. Also, “…Dutch regulation allows insurers to offer ‘group arrangements.’ People joining a group arrangement must have an individual contract with the insurer, but can enjoy specific benefits such as a premium discount on the basic health insurance (max. 5%) and/or on other insurance products.”
- Supplementary insurance. Approximately 85% of Dutch residents purchase supplementary insurance; although basic and supplementary health insurance are separate products, as 99% of individuals obtain basic and supplementary insurance from the same health plan, this can lead to selection in the basic insurance. As supplementary insurance is a ‘free market’ product, it can be priced and designed to attract individuals would would be low-cost to their basic coverage benefits.
The authors also look at whether simply using comorbidity adjusters based on disease conditions on the current or previous years is sufficient or if governments should also take into account whether individuals had high cost in previous years. The authors conclude the following:
First, persistently high/low spending in prior years is substantially predictive of spending in the current year, also net of sophisticated morbidity-based RA. This finding indicates that health plan payment systems with morbidity-based RA—such as those applied in health insurance schemes in Germany and Switzerland, and in Medicare Advantage and the Marketplaces in the United States—might benefit from taking into account “spending persistence.” Our second conclusion is that the method for taking into account spending persistence matters for selection incentives and incentives for cost control. In this paper we compared three distinct methods: (1) implementation of spending-based risk adjustors, (2) implementation of high-risk pooling for people with multiple-year high spending and (3) indirect use of spending persistence via constrained regression. In our simulation, a combination of methods 2 and 3 results in smaller incentives for selection and greater incentives for cost control than method 1.
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