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Does Health-Based Prospective Risk Adjustment Adequately Compensate for Individuals Diagnosed With a New Chronic
Michel Oskam1, Richard C van Kleef1, René C J A van Vliet1
1Erasmus School of Health Policy & Management, Erasmus Centre for Health Economics Rotterdam, Erasmus University Rotterdam, Rotterdam, The Netherlands.
Medical Care Research and Review : MCRR
|November 14, 2025
Summary
Prospective risk adjustment (RA) may underpay health insurers for individuals with new chronic diseases. This payment gap can incentivize insurers to influence consumer choices, as newly diagnosed individuals are more likely to switch insurance plans.
Area of Science:
- Health economics
- Insurance market regulation
- Public health policy
Background:
- Regulated health insurance markets utilize prospective risk adjustment (RA) to minimize insurer risk selection.
- Prospective RA models may not adequately compensate insurers for enrollees newly diagnosed with chronic conditions.
Purpose of the Study:
- To investigate potential payment gaps in prospective RA for individuals diagnosed with new chronic diseases.
- To assess the impact of these payment gaps on insurer selection incentives.
- To analyze consumer switching behavior in response to chronic disease diagnosis.
Main Methods:
- Longitudinal analysis of spending and RA payments from t-2 to t+2.
- Tracking individuals diagnosed with a new chronic disease in year t.
- Analysis of "insurer switching" data within the same period.
Main Results:
- A significant payment gap was identified in year t for individuals newly diagnosed with chronic diseases, with lesser gaps in adjacent years.
- Individuals newly diagnosed with chronic diseases exhibited a higher propensity to switch insurers compared to others.
- The findings suggest that payment gaps can influence insurer behavior and consumer choices.
Conclusions:
- Prospective RA may create financial incentives for insurers to engage in risk selection, particularly concerning newly diagnosed chronic conditions.
- Consumer responses to chronic disease onset, including switching insurance providers, play a crucial role in how RA payment gaps affect insurer incentives.
- Policy adjustments to RA models may be necessary to ensure equitable compensation and mitigate selection incentives.
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