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PubMed1996

Mandatory high-risk pooling: an approach to reducing incentives for cream skimming.

Risk-adjusted capitation payments (RACPs) to competing health insurers are an essential element of market-oriented health care reforms in The Netherlands. Crude RACPs are inadequate, especially because they encourage insurers to select against people expected to be unprofitable--a practice called cream skimming. However, implementing improved RACPs does not appear to be straightforward. This paper analyzes an approach that, given a system of crude RACPs, reduces insurers' incentives for cream skimming in the market for individual health insurance, while preserving incentives for efficiency and cost containment. Under the proposed system of Mandatory High-Risk Pooling (MHRP), each insurer would be allowed to periodically predetermine a small fraction of its members whose costs would be (partially) pooled. The pool would be financed with mandatory, flat-rate contributions. The results suggest that MHRP is a promising supplement to RACPs.

Capitation Fee↗
PubMed1995

State risk pools and mental health care use.

State risk pools provide an opportunity for persons with mental health and substance abuse (MH/SA) problems to purchase health insurance. This study uses data from eight risk pools during the period 1988-1991 to analyze the utilization and enrollment experience for persons who submit claims for MH/SA treatment. Special consideration is given to the effect of variation in inpatient benefits across risk pools. The experience of Connecticut's risk pool differs markedly from that of the other risk pools. Given that two states (Connecticut and Florida) have restricted MH/SA benefits over time, we discuss the ability of risk pools to maintain comprehensive MH/SA benefits.

Adult↗
PubMedDate not supplied

Options and opportunities for individuals and families in the private health insurance market.

A variety of options exist for coverage in the individual health insurance market. Coverage is state-regulated; this provides consumers with important access and benefit protection and ensures stability of insurers. Coverage for individuals is based on health history in most states, and most individuals either qualify for coverage or are able to find it through state high-risk pools and other state mechanisms. Since individual-market purchasers do not have an employer contribution to offset the cost of coverage, proposals for refundable tax credits offer great potential for making health insurance coverage more affordable for eligible persons.

Chronic Disease↗
PubMed1998

Mandatory pooling as a supplement to risk-adjusted capitation payments in a competitive health insurance market.

Risk-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 insufficient, 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 efficiency 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 effective of the three pooling variants.

Capitation Fee↗
PubMed2001

Tax credits and purchasing pools: will this marriage work?

Bipartisan interest is growing in Congress for using federal tax credits to help low-income families buy health insurance. Regardless of the approach taken, tax credit policies must address risk selection issues to ensure coverage for the chronically ill. Proposals that link tax credits to purchasing pools would avoid risk selection by grouping risks similar to the way large employers do. Voluntary purchasing pools have had only limited success, however. This Issue Brief discusses linking tax credits to purchasing pools. It uses information from the Center for Studying Health System Change's (HSC) site visits to 12 communities as well as other research to assess the role of purchasing pools nationwide and the key issues and implications of linking tax credits and pools.

Humans↗
PubMed2001

Private purchasing pools to harness individual tax credits for consumers.

While health insurance tax credits could help people who otherwise could not afford to purchase coverage, many might still find individual coverage too expensive and its marketplace dynamics bewildering. As an alternative, this paper outlines an approach using private purchasing pools for tax-credit recipients. The objective is to offer these individuals and families a choice among competing health plans, and provide many of the same advantages enjoyed by workers in large employer groups, such as relatively low administrative costs, no health rating, and an effective "sponsor." Some express optimism that private pools will emerge naturally and thrive as an option for individual tax-credit recipients. However, adverse selection and other individual health insurance market forces make this a dubious prospect. The approach presented here gives purchasing pools the same tool employer groups use to maintain stability and cohesion--a significant contribution that cannot be used elsewhere. The ability to offer health plans exclusive access to a sizable new, previously uninsured clientele--tax-credit recipients-would enable purchasing pools to attract health plan participation and thus overcome one major reason several state-directed pools for small employers have failed. To avoid other pitfalls, the paper also suggests private pool structures, as well as federal and state roles that seek to balance objectives for market innovation and choice with those for coverage-source stability and efficiency.

Economic Competition↗
PubMed2002

One hundred and eighteen years of the German health insurance system: are there any lessons for middle- and low-income countries?

A number of low and middle income countries (LMICs) are considering social health insurance (SHI) for adoption into their social and economic environment or striving to sustain and improve already existing SHI schemes. SHI was first introduced in Germany in 1883. An analysis of the German system from its inception up to today may yield lessons relevant to other countries. Such an analysis, however, is largely lacking, especially with regard to LMICs. This paper attempts to fill this gap. For each of the following lessons, it considers if and under which conditions they may be of relevance to LMICs. First, small, informal, voluntary health insurance schemes may serve as learning models for fund administration and solidarity, but in order to achieve universal coverage government action is needed to formalise these schemes and to introduce a principle of compulsion. Once compulsory health insurance exists for some people, incremental expansion of coverage to other regions and social groups may be feasible to achieve universality. Second, in order to ensure sustainability of SHI, the mandated benefit package should be adapted incrementally in accordance with changing needs, values and economic circumstances. Third. in a pluralistic SHI system equity, as well as risk pooling and spreading, can be enhanced if funds merge. The optimal number of funds, however, will depend on the stage of development of the SHI system as well as on other objectives of the system, including choice and competition. A risk equalisation scheme may prevent the adverse effects of risk selection, if competition between insurance funds is introduced into the system. Fourth, as an alternative to both state and market regulation, self-governance may serve as a source of stability and sustainability as well as a means of decentralising and democratising a health care system. Finally, costs can be successfully contained in a fee-for-service system, if cost-escalating provider behaviour is constrained by either political pressure or technical means.

Developing Countries↗
PubMedDate not supplied

The nongroup market as one element of a broader coverage-expansion strategy.

Effective health insurance provides financial protection and access to services that maintain and improve health. Such coverage is difficult to obtain in the nongroup market, however, because of a lack of sponsorship, the nature of coverage available, adverse selection, and high administrative costs. However, certain interventions could make this market an effective avenue for expanding coverage to moderate- to high-income persons who lack access to employer-based coverage. In "less regulated" markets, we suggest broader, deeper funding of high-risk pools and standardization of benefits, preexisting condition exclusions, and waiting periods. In "more regulated" markets, a broadly funded reinsurance mechanism could moderate premiums.

Fees and Charges↗
PubMed1998

The role of government in health insurance markets with adverse selection.

This paper analyzes the welfare economics of three arrangements for purchasing health insurance: competitive markets in which consumers are free to choose among options with different levels of coverage and prices; systems with compulsory partial pooling which permit private firms to sell supplementary coverage; and government-run pools that purchase comprehensive coverage at a single price for all consumers. Competitive insurance markets are assumed to face the problem of 'adverse selection'. This refers to a situation in which the insurer cannot observe characteristics of individuals that affect the cost of insurance and that are known to the individuals. Competitive markets with adverse selection are not efficient because low risks cannot purchase comprehensive insurance coverage. However, government-run pools with comprehensive coverage are an inefficient solution to the problem of adverse selection. Compulsory partial coverage may represent an attractive alternative to both competitive markets and comprehensive pools. We discover two situations when government intervention of this type will succeed: when there are not many high risks in the population, and when the risk types are similar. We discuss the implications of these results for health insurance programs in several countries. Our results also have implications for the allocation of public funds for disease-prevention projects. A project targeted at high risks will produce external benefits for low risks, even though they are not directly affected by the program. However, a successful project might eliminate the market for private insurance; in this case the government should consider mandating partial insurance coverage.

Canada↗
PubMed1997

Mutuality and solidarity: assessing risks and sharing losses.

Mutuality is the principle of private, commercial insurance; individuals enter the pool for sharing losses, and pay according to the best estimate of the risk they bring with them. Solidarity is the sharing of losses with payment according to some other scheme; this is the principle of state social insurance; essential features of solidarity are comprehensiveness and compulsion. Private insurance is subject to the uberrima fides principle, or utmost good faith; each side declares all it knows about the risk. The Disability Discrimination Act requires insurers to justify disability discrimination on the basis of relevant information, acturial, statistical or medical, on which it is reasonable to rely. It could be very damaging to private insurance to abandon uberrima fides. However, although some genetic information is clearly useful to underwriters, other information may be so general as to be of little use. The way in which mortality rates are assessed is also explained.

Cost Sharing↗
PubMedDate not supplied

HealthMarts, HIPCs (health insurance purchasing cooperatives), MEWAs (multiple employee welfare arrangements), and AHPs (association health plans): a guide for the perplexed.

This paper considers how pending proposals to authorize new forms of group purchasing arrangements for health insurance would fit and function within the existing, highly complex market and regulatory landscape and whether these proposals are likely to meet their stated objectives and avoid unintended consequences. Cost savings are more likely to result from increased risk segmentation than through true market efficiencies. Thus, these proposals could erode previous market reforms whose goal is increased risk pooling. On the other hand, these proposals contain important enhancements, clarifications, and simplification of state and federal regulatory oversight of group purchasing vehicles. Also, they address some of the problems that have hampered the performance of purchasing cooperatives. On balance, although these proposals should receive cautious and careful consideration, they are not likely to produce a significant overall reduction in premiums or increase in coverage.

Cost Savings↗
PubMed1993

Health care for Nebraska's medically indigent.

In this study, several alternatives for the provision of health care to the medically indigent of Nebraska were analyzed quantitatively and qualitatively. These alternatives were: expansion of county medical assistance programs, state-purchased health insurance policies, Medicaid expansion, revenue pool to redistribute charity-care losses, all-payer rate system, mandated employer-purchased health insurance, and charity-care districts. Under four future scenarios, alternatives were ranked on the basis of program costs, a sensitivity analysis, and qualitative criteria. This analysis found that state-purchased health policies would result in lower program costs than either an increase in county assistance programs or employer-mandated health insurance. Medicaid expansion would reach fewer than one-third of the state's medically indigent. A revenue pool and all-payer rate system are the least costly alternatives but depend on the continuing good will of providers.

Budgets↗
PubMed2004

The role of community-based health insurance within the health care financing system: a framework for analysis.

There is increasing advocacy for community-based health insurance (CBHI) schemes as part of a broader solution to health care financing problems in low-income countries, but to date there is very limited understanding of how CBHI schemes interact with other elements of a health care financing system. This paper aims to set out a preliminary conceptual framework for understanding such interactions, and highlights the kind of research questions raised by such a framework. A basic conceptual map of a CBHI scheme is developed, and extensions added to this map that incorporate (1). effects upon non-members of schemes, (2). government subsidies to providers, (3). government subsidies to schemes, and (4). issues raised by the existence of multiple risk-pooling schemes in a particular context. The utility of a broader approach to analyzing/assessing CBHI schemes is illustrated through examination of two policy issues, namely (1). coordination of CBHI risk pools and government risk pools, and (2). equity implications of CBHI schemes and the role of government subsidies in such schemes. It is concluded that there is a strong need for empirical work to explore how CBHI schemes and the broader health care financing system interact, and that even if individual schemes achieve their own objectives (in terms of equity, efficiency etc.), this does not necessarily imply that such objectives will be achieved at the system level.

Community Participation↗
PubMed1987

Public health insurance: the collective purchase of individual care.

Health insurance does not insure health. It reimburses the costs of health care, and enables potential users of care to pool their risks. But public health insurance is qualitatively different from private, in that risk pooling is not its only or even its primary function. Public systems also redistribute, deliberately, from low to high risk individuals. Perhaps even more important, public insurance is a mechanism for the collective purchase of care. It enables buyers, through their political representatives, to bargain with providers over both price and quantity of care, and thus to control overall system costs, in a way that individual patients cannot. This paper contrasts the experience of public insurance in Canada with private coverage in the U.S., to show how universal public coverage, used as a 'collective purchasing agency', has led to both better coverage and lower costs. Current policy changes in the U.S., described as 'competitive', are in fact efforts to create private collective purchasing agencies to bargain with providers on behalf of individuals. Yet economic analysis has been largely incapable of grasping this process, continuing to treat public and private insurance alike as simply reductions in the price of care faced by individual consumers, and thus generating erroneous predictions and analyses of the behaviour of public systems. It has encouraged a fruitless concern with the prices faced by patients, while ignoring the overwhelming significance of the structure and objectives of the insurer. This failure may be traceable to fundamental flaws in the concept of a transactor in economic theory.

Canada↗
PubMed1997

Redistributional consequences of community rating.

OBJECTIVE: To predict the geographical effects of community rating of health insurance premiums on the amount individuals pay for insurance. DATA SOURCES: We estimate premiums and health expenditures for a 5 percent sample of Californians from the 1990 U.S. Census (the Public Use Microdata Sample) and use data from Blue Cross of California to adjust for regional price differences in services. STUDY DESIGN: We use an episodic health simulation model to estimate health expenditures for 975,074 Californians. Because the simulations do not reflect expenditure differences due to price variation in cost of services, we adjust these data for relative price differences by county. This leaves us with a sample of Californians for whom we have estimated health expenditures. We then compute average expenditures within areas of different sizes (all California, two regions, within counties) to estimate community-rated premiums. We then compare these premiums with actual expenditures on a county-by-county basis. PRINCIPAL FINDINGS: With a single California-wide premium, rural residents pay premiums that exceed their use of care, while urban residents pay premiums that are less than their use of care. These transfers are substantial. Dividing California into regional risk pools at the county level still results in poorer communities providing substantial subsidies to their more wealthy counterparts. CONCLUSIONS: Mandated community rating of premiums in a heterogeneous state such as California results in large unintended transfers of wealth from poorer, rural communities to urban, wealthier communities. Allowing premiums to vary with the regional cost of medical care would eliminate some of the transfers without sacrificing the benefits of community rating. Subsidies to low-income families could also effectively mitigate this redistribution. UTILITY: This article points out some potentially regressive consequences of geographic community rating and suggests ways to mitigate them.

California↗
PubMed1994

Health reform: examining the alternatives.

This Issue Brief examines the major issues of the health reform debate. The issues that must be resolved before reform can be enacted include: allocation of health care resources, universal coverage versus universal access, composition of risk pools, employer and individual mandates, and distribution of health care services' costs. This report also contains short descriptions and analyses of the following proposals: McDermott-Wellstone, Clinton administration, Cooper-Breaux, Chafee-Thomas, Michel-Lott, Nickles-Stearns, and Gramm. Proposals without an individual mandate will not achieve universal coverage. An individual mandate raises significant enforcement issues. An employer mandate will not achieve universal coverage by itself. Depending on the number of hours an employee must work to be included in a mandate, an employer mandate could potentially extend health insurance coverage to as many as 85 percent of the currently uninsured. Each individual has a risk of needing health care services. Restructuring the health insurance market is accomplished by changing the way individuals and their risks are pooled. The composition of these risk pools will determine the costs of health insurance and the distribution of these costs. The theory behind medical saving accounts is that the market for health insurance currently leads to health care cost inflation because many events covered under most health insurance plans are not truly insurable. There are two issues involved in medical savings accounts--the impact on low-income individuals and individuals' ability to evaluate the quality of care they receive. The present market does not provide individuals with adequate information for assessing the quality or effectiveness of medical care. Among the critical issues in health reform is how to reduce the rate of health care cost inflation. The effect of proposals that impose explicit budget caps or price controls on health care cost inflation can be more easily estimated than other means of controlling costs if it is assumed that the political will exists to hold these caps and price controls at the levels set in the proposal. It seems unlikely that shortages or queues would develop in the near term if a single-payer health system were enacted. Currently, the U.S. health care system is characterized by overcapacity. In the longer term, however, with restrictions on hospitals' access to new technology and funds to invest in new equipment and beds, shortages and queues might develop.

Cost Control↗
PubMed1996

Modifying managed competition to address cost and quality.

California's health care marketplace is undergoing rapid transformation--from one characterized by aggressive but unregulated competition to one that approximates managed competition. The Pacific Business Group on Health purchases health insurance for large employers; the California Public Employees Retirement System acts as a purchasing pool for both state workers and smaller public employers; and The Health Insurance Plan of California is a pool for small employers. Each focuses on price-conscious competition among health maintenance organizations. These large purchasing cooperatives also are addressing biased selection among the health plans they offer. Initially focused on simple demographic adjustments, risk adjustment now also entails adjustment for high-risk cases, such as acquired immunodeficiency syndrome (AIDS) and liver transplants. These purchasers also devote more detailed attention to the quality and process of care.

Acquired Immunodeficiency Syndrome↗