Risk sharing between competing health plans and sponsors

In many countries, competing health plans receive capitation payments from a sponsor, whether government or a private employer. All capitation payment methods are far from perfect and have raised concerns about risk selection. Paying health plans partly on the basis of capitation and partly on the basis of actual costs ("risk sharing") reduces plans' incentives for selection but sacrifices some incentives for efficiency. This paper summarizes our empirical research on Dutch health plans with respect to various forms of risk sharing. All sponsors can improve their payment systems by either implementing or changing their form of risk sharing.