Objective: To study the extent to which risk equalization (RE) in competitive health insurance markets can be improved by including an indicator for being healthy.
Study setting/data sources: This study is conducted in the context of the Dutch individual health insurance market. Administrative data on spending and risk characteristics (2011-2014) for the entire population (N = 16.6 m) as well as health survey data from a large sample (N = 387 k) are used.
Study design: The indicator for being healthy is low spending in three consecutive prior years. "Low spending" is defined in three ways: belonging to the bottom 60%, 70%, or 80% of the annual spending distribution. Versions of the Dutch RE model 2017 with and without the indicator are compared on individual-level payment fit and, using the survey data, group-level payment fit.
Principal findings: All three alternative models outperform the Dutch RE model 2017. However, significant unpriced risk heterogeneity remains. Compared with the 60% threshold, the 80% threshold comes with a larger improvement in fit but identifies a less selective group.
Conclusions: The performance of the RE model can be improved by adding an indicator for being healthy based on multiple-year low spending. However, risk-selection potential remains, warranting high priority to further improvement of RE.
Keywords: health insurance; health measurement; risk equalization; spending; survey data.
© 2018 The Authors. Health Services Research published by Wiley Periodicals, Inc. on behalf of Health Research and Educational Trust.