The power of reinsurance in health insurance exchanges to improve the fit of the payment system and reduce incentives for adverse selection

Jane M. Zhu, Timothy Layton, Anna D. Sinaiko, Thomas G. McGuire

Research output: Contribution to journalArticle

11 Scopus citations

Abstract

Risk adjustment and reinsurance protect plans against risk of losses and contend with adverse selection in the new health insurance Exchanges. This article assesses the power of reinsurance in the context of other plan payment features, including prospective and concurrent risk adjustment. Using data from the Medicare Expenditure Panel Survey (MEPS) to draw an "Exchange population," we simulate the contribution of reinsurance to improving the fit of the payment system to plan costs and to mitigating incentives for adverse selection for groups of enrollees with selected chronic illnesses. Modest reductions in attachment points equate the payment-system fit of retrospective to concurrent risk adjustment. Reinsurance is very powerful in fitting payments to costs and moderately effective in dealing with selection incentives.

Original languageEnglish (US)
Pages (from-to)255-274
Number of pages20
JournalInquiry (United States)
Volume50
Issue number4
DOIs
StatePublished - 2013

Keywords

  • Adverse selection
  • Exchanges
  • Health insurance
  • Reinsurance
  • Risk adjustment

ASJC Scopus subject areas

  • Health Policy

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