Prior health expenditures and risk sharing with insurers competing on quality.
Insurers can exploit the heterogeneity within risk-adjustment classes to select the good risks because they have more information than the regulator on the expected expenditures of individual insurees. To counteract this cream skimming, mixed systems combining capitation and cost-based payments have been adopted that do not, however, generally use the past expenditures of insurees as a risk adjuster. In this article, two symmetric insurers compete for clients by differentiating the quality of service offered to them according to some private information about their risk. In our setting it is always welfare improving to use prior expenditures as a risk adjuster.
CORE, Université catholique de Louvain. mmarchand@core.ucl.ac.be.
Maurice
M
Marchand
Motohiro
M
Sato
Erik
E
Schokkaert
D004465:Economic Competition / Q000706:statistics & numerical data; D005102:Health Expenditures / Q000706:statistics & numerical data; D006291:Health Policy; D006801:Humans; D019451:Information Management; D007343:Insurance Carriers; D017059:Models, Econometric; D015233:Models, Statistical; D011785:Quality Assurance, Health Care; D020379:Risk Adjustment; D020414:Risk Sharing, Financial / Q000706:statistics & numerical data; D014481:United States