Wynand van de Ven: Risk Adjustment in the Netherlands
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Wynand van de Ven: Risk Adjustment in the Netherlands Presentation Transcript

  • 1. Nuffield Trust, London Risk Adjustment in the NetherlandsErasmus University Rotterdam Nuffield Trust Risk Adjustment Conference London, 29 June 2011 Wynand PMM van de Ven professor of health insurance Erasmus University Rotterdam vandeven@bmg.eur.nl Nuffield, Risk Adjustment Conference 29jun11 1
  • 2. Agenda 1. Brief introduction to health care in the Netherlands;Erasmus University Rotterdam 2. An overview of how and why risk adjustment techniques were introduced; 3. Challenges and benefits of risk adjustment; 4. Future developments risk adjustment. Nuffield, Risk Adjustment Conference 29jun11 2
  • 3. Health Insurance Act: 01jan06 • Mandate for everyone in the Netherlands to buy individual private health insurance from a private insurer;Erasmus University Rotterdam • Standard benefits package; • Broad coverage: e.g. physician services, hospital care, drugs, medical devices, rehabilitation, prevention, mental care, dental care (children); • Mandatory deductible: €170 per person (18+) per year. Nuffield, Risk Adjustment Conference 29jun11 3
  • 4. Consumer choice • Annual consumer choice of insurer and choice of insurance contract:Erasmus University Rotterdam – in kind, or reimbursement, or a combination; – preferred provider arrangement; – voluntary higher deductible: at most €670 per person (18+) per year; – premium rebate (<10%) for groups. • Voluntary supplementary insurance. Nuffield, Risk Adjustment Conference 29jun11 4
  • 5. Health Insurance Act: 01jan06 • Individual insurer is assumed to be(come) the prudent buyer of care;Erasmus University Rotterdam • Much flexibility in defining the consumer’s concrete insurance entitlements; • Selective contracting insurers - providers; • Open enrolment & ‘community rating per insurer’ for each type of health insurance contract; • Income-related care allowances per household; • Risk equalization. Nuffield, Risk Adjustment Conference 29jun11 5
  • 6. Risk Equalization Fund (REF) Gov’t contribution (18-) REFErasmus University Rotterdam (5%) (50%) Income-related REF-payment based contribution on risk adjusters (45%) Insured Insurer premium (18+) Two thirds of all households receive an income-related care allowance (at most € 1,752 per household per year, in 2011) ) Nuffield, Risk Adjustment Conference 29jun11 6
  • 7. RE in the Netherlands In the Netherlands an individual’s equalization payment is equal to theErasmus University Rotterdam predicted health expenses based on the individual’s risk factors and the equalization formula, minus X euro. X equals 45% of the national average per capita predicted health expenses. (Negative equalization payments imply payments from the insurer to the REF.) Nuffield, Risk Adjustment Conference 29jun11 7
  • 8. Risk adjustment: HOW and WHY? • The crucial question is: How to calculate the risk-adjustedErasmus University Rotterdam equalization payments? • Why crucial? Without good risk equalization, given open enrolment and community-rating, the insurers are confronted with incentives for risk selection. Nuffield, Risk Adjustment Conference 29jun11 8
  • 9. Selection activities • selective contracting; • limited provider plans (HMOs/PPOs);Erasmus University Rotterdam • other managed care techniques; • design of benefits package; • supplementary health insurance; • selective advertising; • virtual (internet) sickness fund; • employer-related (group) sickness fund; • …….. Nuffield, Risk Adjustment Conference 29jun11 9
  • 10. Adverse effects of risk selection 1. A disincentive to be responsive to the preferences of high-risk consumers;  selection may threaten good quality careErasmus University Rotterdam for the chronically ill; 2. Risk selection is more attractive than improving efficiency;  selection may threaten efficiency; 3. Market segmentation;  selection may threaten solidarity. Nuffield, Risk Adjustment Conference 29jun11 10
  • 11. Criteria for risk adjusters • Appropriateness of incentives: – No incentives for selection; – Incentives for efficiency;Erasmus University Rotterdam – Incentives for health-improving activities; – No incentives to distort information to the regulator; • Fairness: – No compensation for N-type risk factors; – No compensation for risk factors which reflect underutilization; – Predictive value. • Feasibility. Nuffield, Risk Adjustment Conference 29jun11 11
  • 12. Risk adjusters 2011 Age and gender; Source of income; Socio-Economic Status (SES):Erasmus University Rotterdam 12 groups based on interaction of:  4 groups based on average income / address: • 1 group: if >15 persons per address; • 3 groups based on average income per address, if not >15 persons per address;  3 age groups; Region (10 clusters of ZIPcodes, no geographical area’s); 23 Pharmacy Cost Groups (PCG’s) (Comorbidity: > 1 PCG per person allowed); 13 Diagnostic Costs Groups (DCG’s) (No comorbidity: max.1 DCG per person). Nuffield, Risk Adjustment Conference 29jun11 12
  • 13. PCGs and DCGs • Pharmacy Costs Groups (PCGs): A morbidity measure based on information about chronic conditions deduced from theErasmus University Rotterdam use of outpatient prescribed drugs. • Diagnostic Cost Groups (DCGs): A morbidity measure base on information about the diseases diagnosed during previous hospitalizations. Nuffield, Risk Adjustment Conference 29jun11 13
  • 14. Additional annual REF-payment Risk Group Additional annual REF-payment (in €) PCG 0 Reference group 0 1 Asthma / COPD 876 2 Epilepsy 1051Erasmus University Rotterdam 3 Rheumatism 1176 4 Heart diseases 1495 5 Crohn’s disease/ c. ulcerosa 1538 6 Stomach diseases 1932 7 Diabetes (insuline dependent) 2807 8 Parkinson 2653 9 Organ transplants 4363 10 Cancer 4796 11 Cystic fibrosis 5382 12 HIV / AIDS 11455 13 Kidney problems 18225 Nuffield, Risk Adjustment Conference 29jun11 14
  • 15. Additional annual REF-payment Risk Group Additional annual REF-payment (in €) DCG 0 Reference group 0 7 Brain injury 1735 9 Colon cancer 2261Erasmus University Rotterdam 11 Liver disorders 3487 12 Rectal cancer 3636 13 Congestive heart failure 3578 14 Hypertension, complicated 4491 15 Neurologic disorders 5390 16 Brain / nervous system cancers 6165 19 Chemotherapy 7591 20 Diabetes with chronic complications 7288 21 Pulmonary fibrosis and brochiectasis 8603 22 HIV / AIDS 9780 23 Renal failure / nephritis 24020 Source: Van de Ven et al., 2004 Nuffield, Risk Adjustment Conference 29jun11 15
  • 16. Challenges, benefits & how further?  How good is the current Dutch formula?  Do we need perfect risk adjustment?Erasmus University Rotterdam  How to prevent selection? – Improving risk adjustment; – Risk sharing; – Less severe premium rate restrictions. Nuffield, Risk Adjustment Conference 29jun11 16
  • 17. Results (costs and losses in euro) Average Costs Predictable Subgroup 2001 Size 2004 losses 2004Erasmus University Rotterdam Self-reported health status fair/poor 21.2% 3404 541 Worst score Physical functioning (SF-36) 10.0% 4469 1140 Worst score Social functioning (SF-36) 10.0% 3190 649 Restricted in mobility (OECD-score) 14.9% 3740 653 Stroke, brain haemorrhage/ infarction 2.6% 4341 943 Myocardial infarction 3.3% 4755 789 Other serious heart disease 2.3% 4654 926 Some type of (malignant) cancer 4.8% 3440 689 Nuffield, Risk Adjustment Conference 29jun11 17
  • 18. Results (costs and losses in euro) Average Costs predictable Subgroup 2001 Size 2004 losses 2004Erasmus University Rotterdam High bloodpressure 15.2% 2961 342 Astma, chronic bronchitis, emphysema 8.1% 3182 460 3-6 self-reported conditions 22.3% 2848 333 7 or more self-reported conditions 2.9% 4833 1461 Prescribed drugs (self reported, 2 weeks) 48.2% 2597 220 Contact specialist (self reported, 1 year) 39.8% 2586 317 Hospitalization (self reported, 1 year) 7.5% 3611 1034 Home care (self reported, 1 year) 2.2% 4258 1152 Nuffield, Risk Adjustment Conference 29jun11 18
  • 19. Results (costs and losses in euro) Average Costs predictable Subgroup 1997 - 2001 Size 2004 losses 2004 In top-25% highest costs, in 3 of 5 years 5.9% 2537 238Erasmus University Rotterdam In top-25% highest costs, in 4 of 5 years 4.5% 3240 304 In top-25% highest costs, in 5 of 5 years 8.2% 6131 1757 Hospitalization in 2 of the 5 years 4.7% 3613 728 Hospitalization in 3 of the 5 years 1.1% 6606 2030 Hospitalization in 4 of the 5 years 0.3% 11763 5933 Hospitalization in 5 of the 5 years 0.1% 14373 6453 Source: Stam and Van de Ven, 2008 Nuffield, Risk Adjustment Conference 29jun11 19
  • 20. Must risk adjustment be perfect? A workable formula need not be ‘perfect’ because of: 1. The costs of selection, including a loss ofErasmus University Rotterdam reputation; 3. Longer-run opportunity costs of selection; 4. Periodic improvements of the formula; 5. Standard deviation of profits from selection. Unknown how much imperfection is acceptable. Nuffield, Risk Adjustment Conference 29jun11 20
  • 21. New (potential) risk-adjusters Diagnostic information not only from prior hospitalization, but also from other prior medical encounters;Erasmus University Rotterdam Indicators of mental illness; A better indicator of disability or functional impairment (based e.g. on durable medical equipment); Multiyear-DCG’s (rather than one-year DCGs); Multi-year high expenses. Nuffield, Risk Adjustment Conference 29jun11 21
  • 22. Risk sharing An imperfect risk adjustment system may be complemented with a system of riskErasmus University Rotterdam sharing between the REF and the insurers. Risk sharing implies that the insurers are retrospectively reimbursed by the REF for some of the costs of some of their members.  Tradeoff selection - efficiency. Nuffield, Risk Adjustment Conference 29jun11 22
  • 23. Financial risk Dutch health insurers Outpatient Inpatient Total expenses expenses expenses 1992 0% 0% 0% 1993-1995 3% 3% 3%Erasmus University Rotterdam 1996 20% 9% 13% 1997 42% 15% 27% 1998 48% 15% 28% 1999 63% 16% 35% 2000 66% 16% 36% 2001 65% 20% 38% 2002 65% 24% 41% 2003 92% 23% 52% 2004-2007 95% 26% 53% 2008 97% 34% 59% 2009 96% 47% 67% 2010 / 2011 96% 62% 74% Nuffield, Risk Adjustment Conference 29jun11 23
  • 24. Regulation-induced selection Selection is not inherent to the “competing-insurer model”, but isErasmus University Rotterdam the result of one possible form of regulation in this model (i.e. open enrollment & community rating) . Alternative forms of regulation result in other outcomes. Nuffield, Risk Adjustment Conference 29jun11 24
  • 25. Imperfect risk equalization… An imperfect risk equalization system may be combined with a premium bandwidthErasmus University Rotterdam rather than with community rating. The additional information insurers have will then be used for premium differentiation rather than for selection. Tradeoff selection - affordability. Low-income high-risk individuals can receive an premium-subsidy. Nuffield, Risk Adjustment Conference 29jun11 25
  • 26. New way of thinking In that approach insurers will focus on efficiency rather than on risk selection, andErasmus University Rotterdam the chronically ill will become the most preferred clients for efficient insurers, rather than non-preferred ‘predictable losses’. This will stimulate insurers to contract with providers who have the best reputation for high-quality well-coordinated care for chronically ill people. Nuffield, Risk Adjustment Conference 29jun11 26
  • 27. How can we prevent selection? • Improving ex-ante risk equalization; • Risk sharing between the REF and theErasmus University Rotterdam insurers:  tradeoff selection – efficiency; • Less severe premium rate restrictions:  tradeoff selection - affordability; (High-risk low-income people can be compensated by premium-related subsidies.) Nuffield, Risk Adjustment Conference 29jun11 27
  • 28. Complex tradeoff Given insufficient risk equalization we are confronted with a trade-off between:Erasmus University Rotterdam  affordability,  efficiency,  and the potential effects of selection, notably low quality care for the chronically ill. Nuffield, Risk Adjustment Conference 29jun11 28
  • 29. The proof of the pudding… The Risk Equalization system is OK if the insurers advertise:Erasmus University Rotterdam “Chronically ill, please come to us. We have contracted the best doctors specialized in your disease!” Nuffield, Risk Adjustment Conference 29jun11 29