Wednesday, October 7, 2015
Risk Selection Threatens Quality Of Care For Certain Patients: Lessons
From Europe's Health Insurance Exchanges
By Wynand P. M. M. van de Ven, Richard C. van Kleef and Rene C. J. A.
Experience in European health insurance exchanges indicates that even
with the best risk-adjustment formulas, insurers have substantial
incentives to engage in risk selection. The potentially most worrisome
form of risk selection is skimping on the quality of care for
underpriced high-cost patients—that is, patients for whom insurers are
compensated at a rate lower than the predicted health care expenses of
these patients. In this article we draw lessons for the United States
from twenty years of experience with health insurance exchanges in
Europe, where risk selection is a serious problem. Mistakes by European
legislators and inadequate evaluation criteria for risk selection
incentives are discussed, as well as strategies to reduce risk selection
and the complex trade-off among selection (through quality skimping),
efficiency, and affordability. Recommended improvements to the
risk-adjustment process in the United States include considering the
adoption of risk adjusters used in Europe, investing in the collection
of data, using a permanent form of risk sharing, and replacing the
current premium "band" restrictions with more flexible restrictions.
Policy makers need to understand the complexities of regulating
competitive health insurance markets and to prevent risk selection that
threatens the provision of good-quality care for underpriced high-cost
Lessons from Europe:
Risk Selection Is A Serious Problem
Examples of selection activities include offering health plans attuned
to the preferences of the under- and overpriced insured, opening clinics
in regions with healthy populations, closing offices in areas with
underpriced high-cost populations, selective marketing to preferred
groups, the use of group contracts, and selection of favorable
applicants by insurance agents.
The situation is more critical in the United States than in Europe in
the short run, because in the United States there are many competing
managed care organizations that deliver care themselves and therefore,
compared to European insurers, have much more effective and subtle tools
to use to distort the level of quality of care. In addition, for-profit
insurers in the United States have extensive experience with risk selection.
Risk Adjustment Should Be Improved
Because risk adjusters ideally should fulfill criteria such as
appropriateness of incentives, fairness, and feasibility, adding new
risk adjusters may involve trade-offs. For example, using a patient's
health care expenses in the previous year as a risk adjuster effectively
reduces selection by insurers, but it also reduces the insurers'
incentives for efficiency.
The United States might consider adopting the following risk adjusters
that are currently used in Europe: disability, pharmacy-based cost
groups, previous use of durable medical equipment, and high costs from
multiple prior years.
Invest In Collecting Data
Another lesson for US policy makers is that it is worthwhile to invest
in collecting appropriate data. Several of the risk adjusters currently
used in Europe required many years of investment in building up
appropriate data systems.
Risk Sharing Is An Effective Strategy
Given imperfect risk adjustment, which seems inevitable to a certain
extent, an effective strategy for reducing selection incentives is risk
sharing. There are several forms of risk sharing. One form is mandatory
risk sharing among insurers, which is sometimes referred to as mandatory
reinsurance with a community-rated reinsurance premium. Another form is
risk sharing between the regulator and the insurers — for example, when
a regulator provides cost-based compensations to the insurers for
high-cost patients. Because risk sharing also reduces an insurer's
incentive for efficiency, it confronts the regulator with a trade-off
between selection and efficiency.
Adopt A Generic Premium Rate Band
Another effective strategy for US policy makers to use in reducing risk
selection is to allow insurers to charge their enrollees, within a band
or range of acceptable charges, risk-adjusted health insurance premium
rates. As a result, the information surplus about enrollees that
insurers have over the regulator might be focused on premium rate
variation rather than on risk selection.
Understand The Complexities
An important lesson from European experience with health exchanges is
that there are no easy solutions and that regulating competitive health
insurance markets involves complex trade-offs among selection (through
quality skimping), efficiency, and affordability. Another lesson from
Europe is that legislators and policy makers can easily make serious
mistakes and be misled by incorrect arguments.
The Commonwealth Fund
October 6, 2015
Risk Selection Threatens Quality of Care for Certain Patients: Lessons
from Europe's Health Insurance Exchanges
Beginning in the early 1990s, several European countries, along with
Israel, established health insurance exchanges similar to those launched
in the U.S. as part of the ACA. For a Commonwealth Fund–supported study
in Health Affairs, researchers gleaned lessons from those countries on
how to reduce incentives to engage in risk selection. Insurers can
engage in risk selection by steering away high-risk patients in a
variety of ways, including purposefully contracting with doctors or
hospitals that offer mediocre or substandard care or excluding providers
with the best reputations for treating certain diseases.
The Big Picture
Risk selection may be a more critical issue in the U.S. over the short
run. "[I]n the United States there are many competing managed care
organizations that deliver care themselves and therefore, compared to
European insurers, have much more effective and subtle tools to use to
distort the level of quality of care," the authors write. U.S. insurers
also are experienced at identifying medical risk and may use the
information at their disposal to design products that are unattractive
to high-risk patients—including those with cancer and substance abuse
disorders. The high number of consumers choosing health plans in the
insurance exchanges may exacerbate the problem. Solving these vexing
issues, the authors say, must be made a priority to prevent sick
patients from receiving poorer-quality services or reduced access to care.
Comment by Don McCanne
This report, supported by the Commonwealth Fund and published in Health
Affairs, looks at European nations that use variations of market
exchanges of private insurance plans (Belgium, Germany, Ireland,
Switzerland and, especially, the Netherlands) to see what lessons on
risk selection they may have for the United States. But are these the
right lessons for us?
Private insurers in the United States have long been masters at figuring
out ways of insuring the healthy, with their relatively low health care
costs, while avoiding insuring individuals with greater health care
needs. Although the Affordable Care Act prohibits insurers from refusing
to cover individuals anticipated to have higher health care costs, we
are seeing insurance innovations in gaming risk selection that
substitute for medical underwriting, which sometimes still prevents
patients from receiving the care that they should have.
The multi-payer system in the United States is infamous for the very
high costs of the wasteful administrative excesses in our health care
financing. In fact, some of these excesses are for the very purpose of
ensuring the business success of the private insurers. So what
efficiencies do the European systems that use marketplace exchanges of
private plans have that might help the United States avoid the
perversities of favorable risk selection on the part of the insurers?
The authors suggest the introduction of additional risk adjusters (more
administration), systems to collect yet more data (more administration),
introduction of risk-sharing strategies such as mandatory
community-rated reinsurance or risk sharing between the regulator and
the insurers (more administration), allowing insurers to charge their
enrollees, within a band or range of acceptable charges, risk-adjusted
health insurance premium rates (more administration), and balancing
trade-offs of quality-skimping selection, efficiency, and affordability
Not only would these "lessons" expand the administrative excesses of our
system, but because of the trade-offs involved, further compromises in
quality and equity would result. No matter what strategies are used, the
private insurers will always find a way around them. That is inherent in
their business-model DNA.
Instead of us looking for lessons in the European private insurance
markets, it seems that these European nations should be looking for
lessons from our neighbor to the North: Canada and its single payer
model of health care financing. We would do well to do the same.
at 3:32 PM