1. Erasmus University Rotterdam ARM Orlando 03Jun07 1 Annual Research Meeting (ARM) AcademyHealth, Orlando, 03Jun07 Evaluation of the Dutch Risk Equalization system: are the insurers confronted with predictable losses for the chronically ill? Wynand P.M.M. van de Ven (vandeven@bmg.eur.nl) Pieter J.A. Stam Rene C.J.A. Van Vliet Erasmus University Rotterdam

2. ARM Orlando 03Jun07 2 Health Insurance Act: 01jan06 Mandate for everyone in the Netherlands to buy private health insurance; Standard benefits package; Selective contracting allowed; Open enrolment per product per insurer; Community rating per product per insurer per province; Risk equalization.

3. Erasmus University Rotterdam ARM Orlando 03Jun07 3 Risk Equalization Fund (REF) premium (18+) REF-payment based on risk adjusters REF Insured Insurer Income-related contribution Gov’t contribution (18-) 50 % Two thirds of all households receive an income-related care allowance (at most € 420 per person per year)

4. Erasmus University Rotterdam ARM Orlando 03Jun07 4 Risk adjusters in the Dutch REF YearNew risk adjuster 1992Age/gender 1995Region, yes/no employee, disability 1997Age/disability 2002 Pharmacy-based Cost Groups (PCGs) (13 PCGs and about 7% of population) 2004 Diagnostic Cost Groups (DCGs) (about 2% of pop) yes/no self-employed 2007Multiple PCGs allowed (co-morbidity); New PCGs: mental health (3% pop.), cancer and growth hormons (20 PCGs and about 16% of population)

5. Erasmus University Rotterdam ARM Orlando 03Jun07 5 Effects of selection Disincentive for insurers to be responsive to the high-risk consumers and contract the best quality care for them; Disincentive for providers to acquire the best reputation for treating chronic diseases; Selection more profitable than efficiency; High premiums for high-risk patients; Instability in the insurance market.

6. Erasmus University Rotterdam ARM Orlando 03Jun07 6 Objective & Research questions Objective: evaluate the risk equalization system. Research questions: 1.Are there identifiable subgroups of consumers with predictable lossses? 2.If so: How large are these subgroups? And how large are the predictable losses? In particular we focus on subgroups of persons with a chronic condition or with above average utilization rates in previous years.

7. Erasmus University Rotterdam ARM Orlando 03Jun07 7 Method Data: all information in the files of a large insurer (Agis) over the period 1998 – 2004, combined with an individual health survey (held in 2001); some 30,000 observations. Method: the Dutch 2007 risk adjusters are applied to the 2004-data. By comparing the predicted 2004-expenditures (based on the 2007 risk adjusters) with their actual 2004- expenditures we calculated the average profits and losses for many subgroups.

8. Erasmus University Rotterdam ARM Orlando 03Jun07 8 Results (costs and losses in euro) Subgroup 2001 Size Costs 2004 Predictable losses 2004 Self-reported health status fair/poor 21.2%3404541 Worst score Physical functioning (SF- 36) 10.0%44691140 Worst score Social functioning (SF-36) 10.0%3190649 Restricted in mobility (OECD-score) 14.9%3740653 Stroke, brain haemorrhage/ infarction 2.6%4341943 Myocardial infarction 3.3%4755789 Other serious heart disease 2.3%4654926 Some type of (malignant) cancer 4.8%3440689

9. Erasmus University Rotterdam ARM Orlando 03Jun07 9 Results (costs and losses in euro) Subgroup 2001 Size Costs 2004 Predictable losses 2004 High bloodpressure 15.2%2961342 Astma, chronic bronchitis, emphysema 8.1%3182460 3-6 self-reported conditions 22.3%2848333 7 or more self-reported conditions 2.9%48331461 Prescribed drugs (self reported, 2 weeks) 48.2%2597220 Contact specialist (self reported, 1 year) 39.8%2586317 Hospitalization (self reported, 1 year) 7.5%36111034 Home care (self reported, 1 year) 2.2%42581152

10. Erasmus University Rotterdam ARM Orlando 03Jun07 10 Results (costs and losses in euro) Subgroup 1997 - 2001 Size Costs 2004 Predictable losses 2004 In top-25% highest costs, in 3 of 5 years 5.9%2537238 In top-25% highest costs, in 4 of 5 years 4.5%3240304 In top-25% highest costs, in 5 of 5 years 8.2%61311757 Hospitalization in 2 of the 5 years 4.7%3613728 Hospitalization in 3 of the 5 years 1.1%66062030 Hospitalization in 4 of the 5 years 0.3%117635933 Hospitalization in 5 of the 5 years 0.1%143736453

11. Erasmus University Rotterdam ARM Orlando 03Jun07 11 Conclusions 1. Many subgroups, from <1% to 30% of population, with predictable losses in the order of hundreds to thousands euros per person per year. 2. Also predictable losses for subgroups of insured whose disease is included as a risk adjuster in the risk equalization formula (e.g. heart problems, cancer, …). 3. Improvement of the risk equalization system needs a high priority. Otherwise the disadvantages due to risk selection may outweigh the advantages of competition.

12. Erasmus University Rotterdam ARM Orlando 03Jun07 12 New (potential) risk-adjusters Diagnostic information not only from prior hospitalization, but from all prior medical encounters ( Diagnosis Treatment Combinations, DTCs) expected to be implemented in 2009; Multiyear-DCG’s; A better indicator of invalidity (or functional heath status); Yes/no voluntary deductible; ……