Presentation prepared for the V Congreso Economia de la Salud
de America Latina y el Caribe November 15-16, 2012, Montevideo, Uruguay
Risk Selection, Risk Adjustment and Choice:
Concepts and Lessons from the Americas
Randall P. Ellis1
Juan Gabriel Fernandez2
1Boston
University
2University of Chile and Chile Ministry of Health
Key Policy Paradigm
 Competition?  Choice
 Choice of what?
 Providers – provide services
 Health plans – pay providers
 Sponsors – collect from consumers, pay health plans
 Choice + heterogeneity  Incentive to select
 Regulations + payment policy reduce selection
Four questions examined for Canada,
Chile, Colombia and United States
 How are payments and contracting arranged in the health care
system?
 What choices are allowed?
 What are the perceived selection problems?
 Efficiency problems
 Equity/fairness problems
 What selection tools are used that worsen or reduce selection?
 Goal is to understand how to better use of risk adjustment, risk
sharing, and regulations
Four agents and five primary
contracting relationships
Sponsor
Health plans
B
C
A
D
E
Consumers
Providers
Four agents and six primary
contracting relationships
Sponsor
Health plans
B
C
A
D
E
Consumers
Providers
 Consumer choice of providers
Sponsor
Health plans
B
A
C
D
E
Consumers
Providers
 Consumer choice of providers
YES:
Sponsor
Health plans
Canada
Chile public*
Chile private
B
Colombia*
US private*
A
C
D
US Medicare*
E
NO:
Consumers
Providers
Provider choice of consumers?
YES:
Sponsor
Health plans
Chile private
Colombia
US
B
Selection
problems
Risk solidarity
problem
NO:
A
D
Canada
Chile public
Patient sorting
problem
Overpaying/un
derpaying
problem
C
US Medicare
pre 1985
E
Consumers
Providers
Health plan choice of provider
(Selective contracting)
YES:
Sponsor
Health plans
US private
US Medicare
Chile
B
Selection
problems
A
C
D
NO:
Canada
Service
distortion
problem
Wasted
administration
costs
Colombia
E
Consumers
US Medicare
pre 1985
Providers
Provider choice of health plan
YES:
Sponsor
Health plans
US private
US Medicare
HMOS
B
Chile private
Colombia
Selection
problems
A
Patient sorting
D
NO:
Wasted
administration
costs
Balance billing
problems
C
E
Consumers
Canada
Providers
US Medicare
pre 1985
Consumer choice of health plans?
YES:
Sponsor
Health plans
US private
US Medicare
Selection
problems
Wasted
administration
costs problem
Colombia
C
A
D
NO:
Canada
Plan turnover
problem
Risk solidarity
problem
Chile private
B
Chile public
E
Consumers
Providers
US Medicare
before 1985
Health plan choice of consumers?
Sponsor
Health plans
YES:
USA private
Chile
B
Selection
problems
Wasted
administration
costs problem
A
D
NO:
Canada
Plan turnover
problem
Risk solidarity
problem
C
Colombia
US Medicare
E
US private
after 2014
Consumers
Providers
Selection
problems
Consumer
Choice
of
Sponsor
Incomplete
insuranceSponsor Choice of Health Plans
Wasted
administration
costs problem
Sponsor
Health Plans
US Private
Labor market
problems
Chile
C
A
D
NO:
Canada
Income
solidarity
problem
Free rider
problem
Colombia
B
Plan turnover
problem
Risk solidarity
problem
YES:
US Medicare
E
Consumers
Providers
US private
after 2020?
Strategies to reduce selection
problems
 Regulations
 Risk Adjustment
 Risk Sharing
USA Medicare, 1985:
very little choice
Hospital
dumping due
to DRGs
Health plans
Government
Traditional
Indemnity
Risk solidarity
problem due to
MEDIGAP
Income solidarity
problem due to
MEDIGAP
Medicare
Enrollees
Consumers
Doctors
Hospital
service
distortion due
to DRGs
Hospitals
Selection
problems?
Sponsor=Insurer
Providers
MEDIGAP
Plans
Ellis and
van de
Ven, 2003
USA Medicare, 2004
Sponsor
Health plans
Government
Traditional
Indemnity
Selection
problems
Wasted
administration
costs
MEDIGAP
Plans
M+C HMOs
Private FFS
Plan turnover
Income solidarity
problem
Consumers
Drugs
Risk solidarity
problem
Medicare
Enrollees
Hospitals
Dumping
Doctors
Service
distortions
Providers
Ellis and
van de
Ven, 2003
Selection
problems
USA Privately Employed, 2010
Incomplete
insurance
Wasted
administration
costs
Labor market
problems
Sponsor
Employer
Health Plans
B
Plan turnover
Indemnity Plans Pharmacy
HMOs
Plans
No Insurance
Free rider
problem
Income solidarity
problem
Consumers
Drugs
Risk solidarity
problem
Employees
and
families
Hospitals
Dumping
Doctors
Service
distortions
Providers
Ellis and
van de
Ven, 2003
Canada (Alberta) 2003
Risk solidarity
problem across
regions
Consumers
FFS Coverage
Budget
Supplementary
Plans
Drugs
All
Individuals
Doctors
Selection
problems
Hospitals
Provincial
Government
Regional Health
Authorities
Sponsor = Insurer = Health plan
Providers
Source: Ellis and
Van de Ven, 2003
FIGURE 2: ALBERTA (CANADA):
SPONSOR = INSURER = HEALTH PLAN = PROVIDER (HOSPITALS)
ALBERTA HEALTH
SERVICES
(AHS)
PROVINCIAL
GOVERMENT
A
D
CONSUMERS
PROVIDERS
HOSPITALS
DRUGS
E
DOCTORS
Fee for
Service
FIGURE 3: US MEDICARE (for Aged and Disabled) 1985
SPONSOR
HEALTH PLAN
GOVERNMENT
TRADITIONAL
INDEMNITY
B
A
CONSUMERS
DRUGS
E
DOCTORS
Medicare
Enrollees
HOSPITALS
D
C
PRIVATE PROVIDERS
FIGURE 4: US MEDICARE (2009)
SPONSOR
HEALTH PLAN
GOVERNMENT
PART D
(Drugs)
TRADITIONAL
INDEMNITY
Medicare
Advantage
B
Private FFS
A
CONSUMERS
HOSPITALS
E
DOCTORS
Medicare
Enrollees
DRUGS
D
C
PRIVATE PROVIDERS
FIGURE 5: US - PRIVATELY INSURED (LARGE FIRMS)
HEALTH PLAN
INDEMNITY
EMPLOYER
HMOs
B
PPOs
Pharmacy
Plans
SPONSOR
A
CONSUMERS
DRUGS
DOCTORS
E
HOSPITALS
D
C
PRIVATE PROVIDERS
FIGURE 5: US - PRIVATELY INSURED (LARGE FIRMS) 2010
INDEMNITY
EMPLOYER
HMOs
B
E
CONSUMERS
D
C
HOSPITALS
No
Insurance
DOCTORS
A
PPOs
Pharmacy
Plans
HEALTH PLAN
DRUGS
SPONSOR
PRIVATE PROVIDERS
FIGURE 5: US - PRIVATELY INSURED after ObamaCare
HEALTH PLAN
INDEMNITY
EMPLOYER
HMOs
B
X
X
X
E
CONSUMERS
D
C
DRUGS
No
Insurance
DOCTORS
A
HOSPITALS
X
PPOs
Pharmacy
Plans
SPONSOR
PRIVATE PROVIDERS
FIGURE 6: COLOMBIA
SPONSOR
HEALTH PLAN
GOVERNMENT
Private EPSs
B
Public EPSs
A
D
CONSUMERS
HOSPITALS
E
DOCTORS
C
DRUGS
FOSYGA + CRES +
Superintendency
PRIVATE PROVIDERS
FIGURE 7: CHILE, PUBLIC INSURANCE (LOW INCOME)
SPONSOR = INSURER = HEALTH PLAN = INSTITUTIONAL PROVIDER
General GOVT
(Ministry of
Health)
FONASA
(National
Health Fund)
Regional
Health
Services*
CONSUMERS
E
* Primary care is provided through the regional governments, called municipalities
DRUGS
HOSPITALS
DOCTORS
A
PROVIDERS
FIGURE 8: CHILE, PUBLIC INSURANCE (CONTRIBUTORS)
SPONSOR = INSURER = HEALTH PLAN = INSTITUTIONAL PROVIDER
A
LOW/NO
COST
DRUGS
Regional
Health
Services*
INST. HOSPITALS
FONASA
(National
Health Fund)
INST. DOCTORS
General GOVT
(Ministry of
Health)
CONSUMERS
* Primary care is provided through the regional governments, called municipalities
DRUGS
HIGHER
COST
PRIVATE
HOSPITALS
E
PRIVATE
DOCTORS
FFS DRG
PROVIDERS
FIGURE 9: CHILE PRIVATELY INSURED
SPONSOR
HEALTH PLAN
CLOSED ISAPRES
(Integrated HMO )
EMPLOYER
OPEN ISAPRES
B
A
DRUGS
REGULAR
COVERAGE
DOCTORS
PRIORITIZED
(AUGE)
HOSPITAL
D
C
E
CONSUMERS
PRIVATE PROVIDERS
Table 1: Summary of perceived selection problems in different health care systems
Alberta US
Chile
Canada Medicare Public
2010
1985
2010
Efficiency Problems
Incomplete insurance – consumer bear too much financial risk
Individual access? Can individuals always find a "fair" plan?
Group access? Can employers always find a "fair" plan?
Service distortion problem - too much or too little of some services
Wasted resources – too much advertising or administration
Labor market problems – job frictions
Patient sorting problem – providers sort patients and offer different qualities
Waiting time problems - plans use waiting time to ration care
X
Plan turnover problem – consumers forced to change plans too often
Equity Problems
Risk solidarity problem – High risks pay too much for health insurance
Income solidarity problem – No subsidy from high to low income consumers
Free rider problem – some people choosing not to be insured
Plan over/underpayment problem – plans paid too much or too little
Provider over/underpayment problem – providers paid too much or too littleX
Simple count of X's
2
X
US
Chile US private
Medicare
Colombia
Private employers
a
2010
2010
2010 2010 a
X
(X)
X
(X)
(X)
(X)
X
(X)
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
(X)
(X)
(X)
X
(X)
10
14
X
Xb
X
X
X
X
X
X
3
4
6
7
Notes:
Ratings reflect subjective valuations by the authors.
a Items appearing in parentheses are addressed by the 2010 Health Reform, although not necessarily eliminated.
b Choosing not to be insured is illegal, but there is an enforcement problem
Table 2: Summary of choices available in various health care systems
Alberta US
Chile
Canada Medicare Public
2010
1985
2010
Which choices are available to each agent?
Sponsor
Choice not to offer insurance?
Choice of health plans?
Choice of benefit features?
Choice of premium cost sharing?
Financial reward for reduced coverage?
Choice of premiums varying by income?
Choice of premiums for family versus individual coverage?
Choice of pay-for-performance incentives?
X
Use of risk adjustment?
Health Plan
Choice of benefits to offer?
Choice of demand side cost sharing to consumers?
Choice of providers with whom to selectively contract?
Choice of provider payment?
Choice of geographic area to serve?
Choice of performance measures to providers?
Is exclusion of preexisting conditions allowed?
Is underwriting allowed (denying coverage)?
Is direct advertising allowed?
Tie-in sales of alternative insurance policies allowed?
US
Chile US private
ColombiaMedicarePrivate employers
2010
2010a
2010 2010a
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
(X)
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
(X)
X
X
X
X
X
X
X
(X)
X
X
X
X
X
(X)
(X)
X
X
Table 2 (continued): Summary of choices available in various health care systems
Alberta US
Chile
Canada Medicare Public
2010
1985
2010
US
Chile US private
Colombia Medicare Private employers
2010
2010
2010 2010
Which choices are available to each agent?
Provider
Choice of patients when at less than full capacity?
Choice of balance billing?
Is there a primary care gatekeeper?
Choice of specialists without a referral?
Choice of different patient waiting times?
Can a hospital refuse to treat if no coverage?
Patient sorting across hospitals and doctors?
Consumers
Choice of sponsor?
Choice of whether to be insured?
Choice of health plan?
Choice of which family members to insure?
Choice of different benefit feature?
Choice of primary care provider?
Choice of specialist?
X
X
Xc
X
X
X
X
X
X
X
X
X
X
X
Xb
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
(X)
X
(X)
X
X
X
5
3
16
21
26
25
Simple count of X's
Notes:
Ratings reflect subjective valuations by the authors.
a Items appearing in parentheses are addressed by the 2010 Health Reform, although not necessarily eliminated.
b Choosing not to be insured is illegal, but there is an enforcement problem
c Limited by fee schedule
32
Table 3: Summary of techniques available that influence selection in different health care systems
Alberta US
Chile
CanadaMedicarePublic
2010 1985
2010
Which techniques are available to increase or reduce selection?
Consumers
Choose not to become insured until high health costs
Choose low benefit plans until needs become great
Providers
Undertreatment of high cost patients
Underprovision of services used by high cost patients
Recommendations to patients to change plans or providers
Delaying visits by high need patients
Health plans
Selective advertising
High deductibles and copayments that deter high cost patients
Differential enrollment based on consumer survey results
Exclusions for preexisting conditions
Genetic testing and use of information at enrollment
Charging higher premiums for high health cost enrollees
Shortage of specialists contracted with
Delayed payments affect high cost enrollees
US
Chile US private
ColombiaMedicarePrivateemployers
2010
2010
2010
2010
Xb
X
X
(X)
(X)
X
X
X
X
X
X
X
X
(X)
X
X
X
X
X
X
X
X
X
X
X
X
X
X
?
X
X
X
(X)
X
(X)
X
(X)
X
X
X
X
X
X
X
X
X
Table 3 (continued): Summary of techniques available that influence selection in different health care systems
Alberta US
Chile
Canada Medicare Public
2010
1985
2010
US
US private
Chile
Colombia Medicare Private employers
2010
2010a
2010
2010a
Which techniques are available to increase or reduce selection?
Sponsor
Risk adjustment (bundled payment, set up ex ante)
Risk sharing (ex post)
Report cards and consumer information
Benefit plan feature variation
Premium cost sharing (how premium contributions vary across consumers)
Premium variation by income
Definition of family for family coverage
Premium rate restrictions (rate bands, ceilings, or rates of increase)
X
X
Supplementary insurance features.
Ease of referrals
Selective contracting in geographic areas with low cost populations
Simple count of X's
Notes:
1
1
X
X
X
X
X
X
7
X
X
X
X
X
X
X
X
X
(X)
X
X
X
(X)
(X)
(X)
(X)
X
X
X
12
18
18
23
X
?
X
X
X
X
X
X
c
a
b
c
Items appearing in parentheses are addressed by the 2010 Health Reform, although not necessarily eliminated.
Choosing not to be insured is illegal, but there is an enforcement problem
Urban vs rural, based more on private doctor avalability than low risk charateristics
Table 4: Summary of problems, choices, and selection technigues in different health care systems
Alberta US
Chile
Canada Medicare Public
2010
1985
2010
What problems are there?
What Choices are available?
Which selection techniques available?
2
5
3
3
1
1
US
US private
Chile
Colombia Medicare Private employers
2010
2010a
2010
2010a
4
6
7
10
14
16
21
26
25
32
7
12
18
18
c
a
b
c
Items appearing in parentheses are addressed by the 2010 Health Reform, although not necessarily eliminated.
Choosing not to be insured is illegal, but there is an enforcement problem
Urban vs rural, based more on private doctor avalability than low risk charateristics
23
Key findings from comparisons
 Countries vary in the choices, problems, and selection tools
available
 Objectives vary: Canada values income and risk solidarity much
more than US; Chile and Colombia are in between
 Service selection problems arise where there is a selective
contracting or pricing with providers (US, Chile, Colombia)
 Sponsorship by employers leads to more selection problems than
sponsorship by a government entity
 Risk adjustment and risk sharing are relevant at many different
levels of the health care system.
 Regulations are as important as financial incentives.
 Paper says nothing about cost and quality efficiency.