Risk Selection, Risk Adjustment and Choice: Concepts and Lessons from the Americas

Randall P. Ellis1

Juan Gabriel Fernandez2

1Boston University2University of Chile and Chile Ministry of Health

Presentation prepared for the V Congreso Economia de la Salud de America Latina y el Caribe November 15-16, 2012, Montevideo, Uruguay

Key Policy Paradigm¨ 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

Competition?

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

DA

C

E

Consumers Providers

Four agents and six primary contracting relationships

Sponsor Health plans

B

DA

C

E

Consumers Providers

Consumer choice of providers

Sponsor Health plans

B

DA C

E

Consumers Providers

Consumer choice of providers

Sponsor Health plans

B

DA C

E

Consumers Providers

YES: CanadaChile public*Chile privateColombia*US private*US Medicare*

NO:

Provider choice of consumers?

Sponsor Health plans

B

DA C

E

Consumers Providers

YES:Chile privateColombiaUS

NO: CanadaChile publicUS Medicare pre 1985

Selection problems

Risk solidarity problemPatient sorting

problemOverpaying/underpaying

problem

Health plan choice of provider(Selective contracting)

Sponsor Health plans

B

DA C

E

Consumers Providers

YES:US privateUS MedicareChile Colombia

NO:CanadaUS Medicare pre 1985

Selection problems

Service distortion problem Wasted

administration costs

Provider choice of health plan

Sponsor Health plans

B

DA C

E

Consumers Providers

YES:US privateUS Medicare HMOSChile privateColombia

NO:CanadaUS Medicare pre 1985

Selection problems

Wasted administratio

n costsBalance billing

problemsPatient sorting

problem

Consumer choice of health plans?

Sponsor Health plans

B

DAC

E

Consumers Providers

YES: US privateUS MedicareChile privateColombia

NO: CanadaChile publicUS Medicare before 1985

Selection problems

Wasted administratio

n costs problem

Plan turnover problem

Risk solidarity problem

Health plan choice of consumers?

Sponsor Health plans

B

DA C

E

Consumers Providers

YES:USA privateChileColombia

NO: CanadaUS MedicareUS private after 2014

Selection problems

Wasted administratio

n costs problem

Plan turnover problem

Risk solidarity problem

Consumer Choice of SponsorSponsor Choice of Health Plans

Sponsor Health Plans

B

DAC

E

Consumers Providers

YES: US PrivateColombiaChile

NO:CanadaUS MedicareUS private after 2020?

Selection problemsIncomplete insuranceWasted

administration costs problem

Labor market problems

Plan turnover problem

Risk solidarity problemIncome

solidarity problem

Free rider problem

Strategies to reduce selection problems

¨ Regulations¨ Risk Adjustment¨ Risk Sharing

USA Medicare, 1985:very little choice

Sponsor=Insurer Health plans

Consumers Providers

MEDI-GAP Plans

Hos

pita

ls

Doc

tors

GovernmentTraditional Indemnity

Medicare Enrollees

Ellis and van de Ven, 2003

Selection problems?

Hospital dumping due

to DRGsHospital service

distortion due to DRGsRisk solidarity

problem due to MEDIGAP

Income solidarity problem due to

MEDIGAP

USA Medicare, 2004

Sponsor Health plans

Consumers Providers

MEDI-GAP Plans

M+C HMOs

GovernmentTraditional Indemnity

Private FFS

Medicare Enrollees

Dru

gs

Hos

pita

ls

Doc

tors

Ellis and van de Ven, 2003

Selection problems

Wasted administratio

n costs Plan turnover

Service distortionsDumping

Risk solidarity problem

Income solidarity problem

USA Privately Employed, 2010Sponsor Health Plans

BIndemnity Plans

Consumers Providers

Phar-macy Plans

No Insurance

Employees and

families

HMOs

Dru

gs

Hos

pita

ls

Doc

tors

Employer

Ellis and van de Ven, 2003

Selection problemsIncomplete insuranceWasted

administration costs

Labor market problems

Plan turnover Free rider problemService

distortionsDumping

Risk solidarity problem

Income solidarity problem

Canada (Alberta) 2003

Source: Ellis and Van de Ven, 2003

Consumers Providers

All Individuals

Bud

get

Hos

pita

ls

Dru

gs

Doc

tors

Provincial Government

Reg

iona

l Hea

lth

Aut

horit

ies

FFS

Cov

erag

e

Supple-mentary

Plans

Sponsor = Insurer = Health plan

Selection problemsRisk solidarity

problem across regions

SPONSOR = INSURER = HEALTH PLAN = PROVIDER (HOSPITALS)

CONSUMERS PROVIDERS

A D

FIGURE 2: ALBERTA (CANADA):

DOCT

ORS

DRU

GS

PROVINCIAL GOVERMENT

ALBERTA HEALTH SERVICES

(AHS)

Fee for Service

HOSP

ITAL

S

E

SPONSOR

CONSUMERS

A

FIGURE 3: US MEDICARE (for Aged and Disabled) 1985

PRIVATE PROVIDERS

DC

E DOCT

ORS

HOSP

ITAL

S

DRU

GS

HEALTH PLAN

B

TRADITIONAL INDEMNITY

GOVERNMENT

Medicare Enrollees

SPONSOR

CONSUMERS

A

FIGURE 4: US MEDICARE (2009)

PRIVATE PROVIDERS

C

E DOCT

ORS

HOSP

ITAL

S

DRU

GS

HEALTH PLAN

B

TRADITIONAL INDEMNITYGOVERNMENT

Medicare Enrollees

Medicare Advantage

Private FFS

PART

D

(Dru

gs)

D

SPONSOR

CONSUMERS

A

FIGURE 5: US - PRIVATELY INSURED (LARGE FIRMS)

PRIVATE PROVIDERS

DC

E DOCT

ORS

HOSP

ITAL

S

DRU

GS

HEALTH PLAN

B

EMPLOYERINDEMNITY

HMOs

PPOs Phar

mac

y Pl

ans

SPONSOR

CONSUMERS

A

FIGURE 5: US - PRIVATELY INSURED (LARGE FIRMS) 2010

PRIVATE PROVIDERS

DC

E DOCT

ORS

HOSP

ITAL

S

DRU

GS

HEALTH PLAN

B

EMPLOYERINDEMNITY

HMOs

PPOs Phar

mac

y Pl

ans

No Insurance

SPONSOR

CONSUMERS

A

FIGURE 5: US - PRIVATELY INSURED after ObamaCare

PRIVATE PROVIDERS

DC

E DOCT

ORS

HOSP

ITAL

S

DRU

GS

HEALTH PLAN

B

EMPLOYERINDEMNITY

HMOs

PPOs Phar

mac

y Pl

ans

No Insurance

X X

XX

SPONSOR

CONSUMERS

A

FIGURE 6: COLOMBIA

PRIVATE PROVIDERS

C

E DOCT

ORS

HOSP

ITAL

S

DRU

GS

HEALTH PLAN

B

GOVERNMENT Private EPSs

D

Public EPSsFOSYGA + CRES + Superintendency

SPONSOR = INSURER = HEALTH PLAN = INSTITUTIONAL PROVIDER

CONSUMERS

A

FIGURE 7: CHILE, PUBLIC INSURANCE (LOW INCOME)

General GOVT (Ministry of

Health)

FONASA (National

Health Fund)

DOCT

ORS

HOSP

ITAL

S

DRU

GS

Regional Health

Services*

EPROVIDERS

* Primary care is provided through the regional governments, called municipalities

PROVIDERS

FFS DRG

HIGHER COST

LOW/NO COST

SPONSOR = INSURER = HEALTH PLAN = INSTITUTIONAL PROVIDER

CONSUMERS

A

FIGURE 8: CHILE, PUBLIC INSURANCE (CONTRIBUTORS)

General GOVT (Ministry of

Health)

FONASA (National

Health Fund)

INST

. DO

CTO

RS

INST

. HO

SPIT

ALS

DRU

GS

Regional Health

Services*

E PRIV

ATE

DOCT

ORS

PRIV

ATE

HOSP

ITAL

S

DRU

GS

* Primary care is provided through the regional governments, called municipalities

SPONSOR

CONSUMERS

A

FIGURE 9: CHILE PRIVATELY INSURED

PRIVATE PROVIDERS

DC

EDO

CTO

RS

HOSP

ITAL

DRU

GS

REGULAR COVERAGE

PRIORITIZED (AUGE)

HEALTH PLAN

B

CLOSED ISAPRES (Integrated HMO )EMPLOYER

OPEN ISAPRES

Table 1: Summary of perceived selection problems in different health care systemsAlberta Canada 2010

US Medicare 1985

Chile Public 2010

Colombia 2010

US Medicare 2010 a

Chile Private 2010

US private employers 2010 a

Efficiency ProblemsIncomplete insurance – consumer bear too much financial risk X X (X) X (X)Individual access? Can individuals always find a "fair" plan? (X)Group access? Can employers always find a "fair" plan? X (X)Service distortion problem - too much or too little of some services X X X X XWasted resources – too much advertising or administration X X (X)Labor market problems – job frictions X

Patient sorting problem – providers sort patients and offer different qualities X X X X XWaiting time problems - plans use waiting time to ration care X XPlan turnover problem – consumers forced to change plans too often X X X

Equity ProblemsRisk solidarity problem – High risks pay too much for health insurance X (X)Income solidarity problem – No subsidy from high to low income consumers X X X (X)Free rider problem – some people choosing not to be insured Xb (X)Plan over/underpayment problem – plans paid too much or too little X X X XProvider over/underpayment problem – providers paid too much or too littleX X X X X X (X)

Simple count of X's 2 3 4 6 7 10 14

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 systemsAlberta Canada 2010

US Medicare 1985

Chile Public 2010

Colombia 2010

US Medicare 2010a

Chile Private 2010

US private employers 2010a

Which choices are available to each agent?Sponsor

Choice not to offer insurance? (X)Choice of health plans? (X) X XChoice of benefit features? X X X X XChoice of premium cost sharing? X X X X XFinancial reward for reduced coverage? XChoice of premiums varying by income? X X XChoice of premiums for family versus individual coverage? X XChoice of pay-for-performance incentives? X X X XUse of risk adjustment? X X X X X

Choice of benefits to offer? X X X (X)Choice of demand side cost sharing to consumers? X X X X XChoice of providers with whom to selectively contract? X X X X XChoice of provider payment? X X X X XChoice of geographic area to serve? X X X XChoice of performance measures to providers? X X X X XIs exclusion of preexisting conditions allowed? X X (X)Is underwriting allowed (denying coverage)? X X (X)Is direct advertising allowed? X X X XTie-in sales of alternative insurance policies allowed? X X

Health Plan

Table 2 (continued): Summary of choices available in various health care systemsAlberta Canada 2010

US Medicare 1985

Chile Public 2010

Colombia 2010

US Medicare 2010

Chile Private 2010

US private employers 2010

Which choices are available to each agent?

ProviderChoice of patients when at less than full capacity? X X X X XChoice of balance billing? Xc X X X XIs there a primary care gatekeeper? X X X X X XChoice of specialists without a referral? X X X XChoice of different patient waiting times? X X X X X XCan a hospital refuse to treat if no coverage? XPatient sorting across hospitals and doctors? X X X X X

ConsumersChoice of sponsor? XChoice of whether to be insured? Xb X (X)Choice of health plan? X X X XChoice of which family members to insure? X (X)Choice of different benefit feature? X X XChoice of primary care provider? X X X X X X XChoice of specialist? X X X X X X X

Simple count of X's 5 3 16 21 26 25 32Notes:

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 problemc Limited by fee schedule

Table 3: Summary of techniques available that influence selection in different health care systemsAlberta Canada 2010

US Medicare 1985

Chile Public 2010

Colombia 2010

US Medicare 2010

Chile Private 2010

US private employers

2010

Which techniques are available to increase or reduce selection?Consumers

Choose not to become insured until high health costs Xb (X)Choose low benefit plans until needs become great X X (X)

ProvidersUndertreatment of high cost patients X X X (X)

Underprovision of services used by high cost patients X X X X XRecommendations to patients to change plans or providers X X XDelaying visits by high need patients X X X X X

Selective advertising X X X XHigh deductibles and copayments that deter high cost patients X X (X)Differential enrollment based on consumer survey results X X XExclusions for preexisting conditions X (X)

Genetic testing and use of information at enrollment X XCharging higher premiums for high health cost enrollees X (X)Shortage of specialists contracted with X X X XDelayed payments affect high cost enrollees X ? X X

Health plans

Table 3 (continued): Summary of techniques available that influence selection in different health care systemsAlberta Canada 2010

US Medicare 1985

Chile Public 2010

Colombia 2010

US Medicare 2010a

Chile Private 2010

US private employers 2010a

Which techniques are available to increase or reduce selection?

SponsorRisk adjustment (bundled payment, set up ex ante) X X XRisk sharing (ex post) X XReport cards and consumer information X X XBenefit plan feature variation X XPremium cost sharing (how premium contributions vary across consumers) X (X)Premium variation by income X X (X)Definition of family for family coverage X ? X (X)Premium rate restrictions (rate bands, ceilings, or rates of increase) X X X (X)Supplementary insurance features. X X X X X X XEase of referrals X XSelective contracting in geographic areas with low cost populations X (X) X

c

X

Simple count of X's 1 1 7 12 18 18 23Notes:

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 problemc 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 systemsAlberta Canada 2010

US Medicare 1985

Chile Public 2010

Colombia 2010

US Medicare 2010a

Chile Private 2010

US private employers 2010a

Which selection techniques available?

c

1 1 7 12 18 18 23

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 problemc Urban vs rural, based more on private doctor avalability than low risk charateristics

What Choices are available? 5 3 16 21 26 25 32

What problems are there? 2 3 4 6 7 10 14

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.