Falling ill raises the health insurer's administration bill

In many countries, governments use payment systems to compensate health insurers more for enrollees with higher expected costs. However, little empirical research has examined whether these payment systems should also include health insurers' administrative costs. We provide two sources of evidence that health insurers with a more morbid population have higher administrative costs. First, we show at the customer level a causal relationship between individual morbidity and individual administrative contacts with the insurer, using the weekly evolution of the number of individual customer contacts (calls, emails, in-person visits etc.) of a large Swiss health insurer. Using a difference-in-differences design, we find that the onset of a chronic illness causes on average a persistent increase of about 40% in individuals' contacts with the health insurer. Second, we provide evidence that this relationship also holds for total administrative costs at the insurer level. We study twenty years of Swiss health insurance market data and find a positive elasticity of around 1, indicating that, all else equal, an insurer with a more morbid population, equal to 1% more health care spending, faces about 1% higher administrative costs.