Risk-adjusted capitation payments for catastrophic risks based on multi-year prior costs

Area of Science:

• Health Economics
• Insurance Policy
• Healthcare Management

Background:

• Regulated competition in health insurance is increasingly proposed globally.
• A key debate involves covering catastrophic risks within insurance benefits packages.
• The Dutch government proposed compulsory national health insurance with regulated competition in 1988.

Purpose of the Study:

• To analyze the adequacy of a proposed Dutch capitation formula for financing catastrophic risks.
• To investigate the potential for 'cream skimming' under the proposed system.
• To evaluate the impact of using multi-year prior costs in risk adjustment.

Main Methods:

• Explorative empirical analysis of a specific capitation formula.
• Focus on the financial implications for insurers covering catastrophic risks.
• Assessment of risk adjustment mechanisms based on prior costs and demographics.

Main Results:

• The proposed capitation formula is likely inadequate for covering catastrophic risks.
• The formula creates significant opportunities for 'cream skimming' by insurers.
• Reliance on multi-year prior costs may not accurately reflect current risk profiles.

Conclusions:

• The Dutch capitation formula requires revision to ensure equitable coverage of catastrophic risks.
• Policy interventions are needed to mitigate 'cream skimming' in competitive insurance markets.
• Effective risk adjustment is critical for the financial viability of insurers offering comprehensive benefits.