A model of the impact of reimbursement schemes on health plan choice (original) (raw)
Related papers
Competition among Health Plans: A Two-Sided Market Approach
2009
We set-up a two-sided market framework to model competition between a Prefered Provider Organization (PPO) and a Health Maintenance Organization (HMO). Both health plans compete to attract policyholders on one side and providers on the other side. The PPO, which is characterized by a higher diversity of providers, attracts riskier policyholders. Our two-sided framework allows to examine the consequences of this risk segmentation on the providers' side, especially in terms of remuneration. The outcome of competition mainly depends on two effects: a demand effect, influenced by the value put by policyholders on providers access and an adverse selection effect, captured by the characteristics of the health risk distribution. If the adverse selection effect is too strong, the HMO gets a higher profit in equilibrium. On the contrary, if the demand effect dominates, the PPO profit is higher in spite of the unfavorable risk segmentation. We believe that our model, by highlighting the two-sided market structure of the health plans' competition, provides new insights to understand the increase in the PPOs' market share observed during the last decade in the US.
Public Health Insurance with Monopolistically Competitive Providers and Optional Spot Sales
The B.E. Journal of Economic Analysis & Policy
We study the implications of extending public-insurance coverage over differentiated medical products of the same therapeutic group to market outcomes. The public insurer can set the reimbursement level for medical providers and the copayment for the insured for medical care provided under the policy coverage, but cannot directly control providers’ spot sales (outside of insurance) price. In this setup, the price offered by the public insurer to medical providers must maintain their reservation profit from selling on the spot market directly to consumers. We show that the public insurer can manipulate this reservation profit by setting the copayment rate, and thereby promote market welfare while increasing consumers’ surplus due to lower medical prices and lower market entry. The results survive generalizations including moral hazard and incomplete insurance coverage.
Death spirals, switching costs, and health premium payment systems
2001
This paper develops a model of health plan competition and pricing in order to understand the dynamics of health plan entry and exit, in the presence of switching costs and alternative health premium payment systems. We build an explicit model of death spirals, in which profitmaximizing competing health plans find it optimal to adopt a pattern of increasing relative prices culminating in health plan exit. We find the steady-state numerical solution for the price sequence and the plan's optimal length of life through simulation and do some comparative statics. This allows us to show that using risk adjusted premiums and imposing price floors are effective at reducing death spirals and switching costs, while having employees pay a fixed share of the premium enhances death spirals and increases switching costs.
Demand elasticities and service selection incentives among competing private health plans
Journal of health economics, 2017
We examine selection incentives by health plans while refining the selection index of McGuire et al. (2014) to reflect not only service predictability and predictiveness but also variation in cost sharing, risk-adjusted profits, profit margins, and newly-refined demand elasticities across 26 disaggregated types of service. We contrast selection incentives, measured by service selection elasticities, across six plan types using privately-insured claims data from 73 large employers from 2008 to 2014. Compared to flat capitation, concurrent risk adjustment reduces the elasticity by 47%, prospective risk adjustment by 43%, simple reinsurance system by 32%, and combined concurrent risk adjustment with reinsurance by 60%. Reinsurance significantly reduces the variability of individual-level profits, but increases the correlation of expected spending with profits, which strengthens selection incentives.
Social Science & Medicine, 1998
AbstractÐRisk-adjusted capitation payments (RACPs) to competing health insurers are an essential element of market-oriented health care reforms in many countries. RACPs based on demographic variables only are insucient, because they leave ample room for cream skimming. However, the implementation of improved RACPs does not appear to be straightforward. A solution might be to supplement imperfect RACPs with a form of mandatory pooling that reduces the incentives for cream skimming. In a previous paper it was concluded that high-risk pooling (HRP), is a promising supplement to RACPs. The purpose of this paper is to compare HRP with two other main variants of mandatory pooling. These variants are called excess-of-loss (EOL) and proportional pooling (PP). Each variant includes ex post compensations to insurers for some members which depend to various degrees on actually incurred costs. Therefore, these pooling variants reduce the incentives for cream skimming which are inherent in imperfect RACPs, but they also reduce the incentives for eciency and cost containment. As a rough measure of the latter incentives we use the percentage of total costs for which an insurer is at risk. This paper analyzes which of the three main pooling variants yields the greatest reduction of incentives for cream skimming given such a percentage. The results show that HRP is the most eective of the three pooling variants. #
Health Services Research, 2005
Objective. To determine whether hospital mortality rates changed in New Jersey after implementation of a law that changed hospital payment from a regulated system based on hospital cost to price competition with reduced subsidies for uncompensated care and whether changes in mortality rates were affected by hospital market conditions. Data Sources/Study Setting. State discharge data for New Jersey and New York from 1990 to 1996. Study Design. We used an interrupted time series design to compare risk-adjusted inhospital mortality rates between states over time. We compared the effect sizes in markets with different levels of health maintenance organization penetration and hospital market concentration and tested the sensitivity of our results to different approaches to defining hospital markets. Data Collection/Extraction Methods. The study sample included all patients under age 65 admitted to New Jersey or New York hospitals with stroke, hip fracture, pneumonia, pulmonary embolism, congestive heart failure, hip fracture, or acute myocardial infarction (AMI). Principal Findings. Mortality among patients in New Jersey improved less than in New York by 0.4 percentage points among the insured (p 5 .07) and 0.5 percentage points among the uninsured (p 5 .37). There was a relative increase in mortality for patients with AMI, congestive heart failure, and stroke, especially for uninsured patients with these conditions, but not for patients with the other four conditions we studied. Less competitive hospital markets were significantly associated with a relative decrease in mortality among insured patients. Conclusions. Market-based reforms may adversely affect mortality for some conditions but it appears the effects are not universal. Insured patients in less competitive markets fared better in the transition to price competition.
Exclusionary Equilibria in Health-Care Markets
Journal of Economics <html_ent glyph="@amp;" ascii="&"/> Management Strategy, 1997
We have demonstrated that when providers of health insurance are perceived to be differentiated by consumers, circumstances may arise under which they find it advantageous to restrict the set of health-care providers that they approve to their customers. Even if all health-care providers are equally qualified and efficient, payers may choose to contract with a selected subset of them in order to secure more favorable contract terms. Moreover, in a concentrated health-care market that consists of two health insurance companies (payers) and two health-care providers (hospitals), both payers may choose to contract with only one of the hospitals while excluding the other completely from the market. When consumers' valuation of an extended choice of providers is small in comparison with the extent of differentiation that exists between the payers, such an exclusionary outcome is the unique equilibrium of the game.
Risk Sharing and Risk Adjustment Strategies to Deal with Health Plan Selection and Efficiency
Health care cost escalation is a serious problem in many countries and many researchers point to managed care through capitation as an important tool for controlling costs while fostering cost-e¤ectiveness. While capitation can create desirable e¢ ciency incentives, it also creates strong selection incentives. This paper compares the e¤ectiveness of risk adjustment and risk sharing strategies through four di¤erent reimbursement payment systems for reducing the welfare loss due to selection in the health care market. Selection and e¢ ciency incentives enter in a three-stage model in which consumers choose provider, pro…t maximizing plans decide the schedule of services o¤ered, and regulator select the payment system that minimizes a social welfare loss. Minimum welfare loss risk adjustment is superior to other risk adjustment strategies, but only uniformly superior to risk sharing when the quality of the information used by the payer is high enough.