Risk Equalisation Methodologies : An International Perspective

Transcription

1 Centre for Actuaral Research (CARE) A Research Unt of the Unversty of Cape Town Rsk Equalsaton Methodologes : An Internatonal Perspectve CARE Monograph No. 3 Prepared by Nel Parkn and Heather McLeod September 2001 ISBN Centre for Actuaral Research Unversty of Cape Town Prvate Bag Rondebosch 7701 SOUTH AFRICA Telephone: +27 (21) Fax: +27 (21) E-mal: care@commerce.uct.ac.za

2 Synopss In order to preserve socal soldarty n healthcare, governments mpose regulaton of health funders to entrench communty ratng and open enrolment. Communty ratng and open enrolment are normally accompaned by mechansms for rsk equalsaton between the funds operatng n that market. Countres whch have ntroduced such a form of rsk equalsaton nclude: Australa, Belgum, Canada, Colomba, Fnland, Germany, Czech Republc, Ireland, Israel, Netherlands, New Zealand, Norway, Russan Federaton, Sweden, Swtzerland, Unted Kngdom and the Unted States. Chle s consderng the ntroducton of rsk equalsaton. In South Afrca, communty ratng has been re-ntroduced from January 2000 but wthout a mechansm for rsk equalsaton. The monograph provdes detals of a selecton of the rsk equalsaton methodologes n use nternatonally n 2001, and descrbes ther role wthn the relevant health systems. The reasons for the ntroducton of rsk equalsaton and the evoluton of the methodology are of partcular nterest. Wherever possble, techncal detals of the calculaton methodology are provded. The factors used n these models to predct health expendture vary from demographc (such as age, gender or regon) to more complex systems nvolvng health status. Many of the models that were ntally mplemented were crude predctors of health costs, and provded lmted success. However, as data systems mproved and research nto ths feld has grown, the models have become ncreasngly complex, partcularly n the Unted States. A key lesson from ths s that the mplementaton of such a measure need not am to be perfect. Instead, t s an on-gong process whch needs to be updated and revsed regularly n order to reman relevant and effectve. In consderng the complexty of the systems and ther sometmes tortuous evoluton, the authors are remnded of an earler, more smple health fundng envronment : "Pay the physcan as long as you are well" (maxm of Confucus). CARE Rsk Equalsaton Methodologes

3 Table of contents Synopss... Table of contents... Glossary...v 1. Introducton Background Objectves of Research Sources of Informaton and Lmtatons Avalablty of Source Materal Acknowledgements Termnology Australa Outlne of Health System Objectves of Rsk Equalsaton The Method Currently Used The Calculaton Problems wth the Current System The Evoluton of Rsk Equalsaton Belgum Outlne of Health System Objectves of Rsk Equalsaton The Method Currently Used Problems wth the Current System The Evoluton of Rsk Equalsaton Proposed Changes Colomba Outlne of Health System Objectves of Rsk Equalsaton The Method Currently Used Problems wth the Current System Czech Republc Outlne of Health System Objectves of Rsk Equalsaton The Method Currently Used The Calculaton Problems wth the Current System The Evoluton of Rsk Equalsaton...24 CARE Rsk Equalsaton Methodologes

4 7. Germany Outlne of Health System Objectves of Rsk Equalsaton The Method Currently Used The Calculaton Problems wth the Current System The Evoluton of Rsk Equalsaton Ireland Outlne of Health System Objectves of Rsk Equalsaton The Method Currently Used The Calculaton Problems wth the Current System The Evoluton of Rsk Equalsaton Israel Outlne of Health System Objectves of Rsk Equalsaton The Method Currently Used Problems wth the Current System The Evoluton of Rsk Equalsaton Proposed Changes Netherlands Outlne of Health System Objectves of Rsk Equalsaton The Method Currently Used Problems wth the Current System The Evoluton of Rsk Equalsaton New Zealand Russan Federaton Outlne of Health System The Method Currently Used Swtzerland Outlne of Health System Objectves of Rsk Equalsaton The Method Currently Used The Calculaton Problems wth the Current System The Evoluton of Rsk Equalsaton...61 CARE Rsk Equalsaton Methodologes v

5 14. Unted Kngdom England Northern Ireland Scotland Wales Unted States of Amerca Outlne of Health System Medcare Medcad Restrcton of Research Other countres Assocaton Internatonale de la Mutualté Comparson of Models Bref Lessons from the Research...77 References...78 APPENDIX A Subtle Rsk Selecton...83 APPENDIX B Belgum : Law Leburton...84 APPENDIX C Netherlands : Before APPENDIX D Israel : Basc Basket...88 APPENDIX E Israel : Rsk Sharng Payments...89 APPENDIX F England : Need Index...90 APPENDIX G Northern Ireland : Weghtngs...92 APPENDIX H Scotland s age/sex weghts...96 CARE Rsk Equalsaton Methodologes v

6 Glossary Adverse Selecton Ths occurs when an nsured person selects an nsurer that charges a premum whch s lower than hs/her expected cost of health. A result of adverse selecton s the tendency for hgh rsk people to purchase nsurance, whle low rsk people opt out. Ambulatory Care Group (ACG) Ths s a classfcaton system, whereby patents are grouped accordng to npatent dagnoses. There are dfferent methodologes used to acheve ths groupng, ncludng Dagnoss Related Groups (DRGs). Ancllary Care Ths ncludes servces such as physotherapy, speech and occupatonal therapy, dentsts and optcans. Captaton Payments Ths s a rembursement system whch nvolves the organsaton at rsk recevng a fxed fee for each patent treated. These payments are often adjusted, through a rsk equalsaton mechansm, for certan factors such as sex and gender Casemx Ths descrbes the mx and type of patents that are treated by a hosptal (as determned by ther medcal condtons) Copayments Ths occurs when the patent s not fully rembursed for costs of treatment. Instead, the patent has to meet some of the costs at the pont of delvery. Communty Ratng Ths refers to a restrcton on the premum that nsurers can levy. Typcally, the cost of a certan level of nsurance s the same for all members wthout consderaton for ther perceved rsk. There are two man types of communty ratng: sngle rate communty ratng (premums are all equal for all members wth a certan level of cover) and lfetme communty ratng (premums are rated accordng to age at entry, but are otherwse equal). Cream Skmmng (See Rsk Selecton) Demographc Factors These are varables that descrbe certan characterstcs of an nsured populaton, and are assocated wth expected health care costs. Examples nclude age, gender, regon and famly status. CARE Rsk Equalsaton Methodologes v

7 Dagnostc Cost Group (DCG) Ths s a model whch s based on npatent hosptalsaton data to classfy members nto rsk groups. Dagnostc Related Groups (DRG) Ths s a classfcaton system whch s based on medcal dagnoses. Fee-for-Servce Ths s a rembursement system, under whch provders receve a retrospectve payment for each servce provded. Health Status Factors These varables are used to predct health care costs on the bass of specfc health related data (e.g. dagnoses). Inpatent Ths refers to a patent who s admtted to hosptal (or other such faclty) for one or more nghts. Open Enrolment Under a system of open enrolment, all applcants are guaranteed acceptance for cover, regardless of ther rsk profle. Outpatent Ths refers to a patent who receves treatment wthout occupyng a ward bed. Per Dem payments Ths s a rembursement mechansm wth pays a fxed amount to provders for each day of hosptal npatent care. Rsk Equalsaton (see Table 2.1 for related terms) Ths s a mechansm used to redstrbute or allocate resources to nsurers (or other people at rsk), n order to more accurately reflect the expected costs of the rsk structure of the nsureds actually enrolled. Rsk Ratng Ths s a method used to levy premums, under whch members are charged accordng to ther perceved rsk to the nsurer. Rsk Selecton (Cherry Pckng, Cream Skmmng) Ths occurs when nsurers select to nsure people whose expected costs are lower than the expected cost of the populaton for whom the premum has been set. Sources: n/e/r/a, Rsk Adjustment and Its Implcatons for Effcency and Equty n Health Care Systems ; HCWP, Prvate Health Insurance n Ireland: Challengng Tmes ; Advsory Group to the Mnster for Health on the Rsk Equalsaton Scheme, Report of the Advsory Group on the Rsk Equalsaton Scheme. CARE Rsk Equalsaton Methodologes v

8 1. Introducton 1.1 Background Health systems across the world are faced wth rsng medcal costs and ncreased demand whch threaten the vablty of the system. Insurers and health funds n compettve markets have n many cases responded by selectng those members who present low health rsks (known as rsk selecton or cherry pckng), leavng those wth the greatest need unnsured, and unable to obtan health care n ther own capacty. In order to preserve socal soldarty n healthcare, governments mpose regulaton of health funders to entrench communty ratng and open enrolment. Communty ratng and open enrolment are normally accompaned by mechansms for rsk equalsaton between the funds operatng n that market. In South Afrca, compulsory communty ratng of prvate sector medcal schemes was restored n January 2000 by the Medcal Schemes Act, No. 131 of Early drafts of the legslaton reserved the rght for the Mnster of Health to ntroduce a rsk equalsaton system. However n January 2000 the return to communty ratng went ahead wthout a rsk equalsaton mechansm n place. Intal research on the potental of rsk equalsaton mechansms was publshed n South Afrca by Söderlund and Khosa n They consdered the mechansms mplemented n a number of countres, but at that stage, few had been n operaton for any length of tme. 1.2 Objectves of Research The monograph provdes detals of a selecton of the rsk equalsaton methodologes n use nternatonally n 2001, and descrbes ther role wthn the relevant health systems. The reasons for the ntroducton of rsk equalsaton and the evoluton of the methodology are of partcular nterest. Wherever possble, techncal detals of the calculaton methodology are provded. 1.3 Sources of Informaton and Lmtatons Journals and other publcatons provded much of the background nformaton for ths work. Research was then conducted through the nternet and n partcular, government webstes. Emal was an especally mportant tool, as t allowed drect communcaton wth those responsble for the rsk equalsaton mechansm n certan countres. CARE Rsk Equalsaton Methodologes 1

9 The extensve use of electronc communcaton enabled access to current nformaton, whch s partcularly mportant n an area whch s developng rapdly. The health envronment s dynamc and constantly subject to reform, wth nformaton agng quckly. As such, any research thereof cannot be guaranteed to be completely accurate. Further, wrtng about systems from an outsde perspectve can often be msleadng, and as Jost states: "wrtng about the Dutch health care system from a dstance s a rsky enterprse because t changes so often." Source : Jost TS, Prvate or publc approaches to nsurng the unnsured Ths monograph could not fully descrbe each health system, but merely ams to outlne those aspects partcularly relevant to the rsk equalsaton methodology, n order to assst comparson. Ths monograph does not purport to be an exhaustve collecton of countres whch may have mplemented rsk equalsaton. Attempts have been made to gather nformaton on countres frequently referred to wth regard to rsk equalsaton. 1.4 Avalablty of Source Materal Readers may wsh to access partcular source documents lsted n the reference secton. A copy of each document, ether on paper or electroncally, s lodged wth the Centre for Actuaral Research at the Unversty of Cape Town. Our donor communty are welcome to make full and free use of the Centre resources and lbrary. Many documents have addtonally been lodged wth the Resource Centre of the Councl for Medcal Schemes n Pretora. 1.5 Acknowledgements Obtanng relevant (sometmes unpublshed) nformaton can be challengng, and reles on the generous assstance of a number of people. Many of the artcles used were obtaned through emal contact between the authors of artcles and Nel Parkn. Much of ths research would not have been possble wthout ther generous and open sharng of knowledge. The authors wsh to thank Dbuleng Mohlakwana, the treless manager of the Resource Centre of the Councl for Medcal Schemes. Nel Parkn also wshes to acknowledge Marna Berensco s assstance wth medcal ssues. Any errors that reman are solely the responsblty of the authors. CARE Rsk Equalsaton Methodologes 2

10 2. Termnology One defnton of rsk equalsaton s gven as: Rsk equalsaton s a mechansm used to redstrbute or allocate resources to nsurers (or other people at rsk), n order to more accurately reflect the expected costs of the rsk structure of the nsureds actually enrolled. (Source : n/e/r/a, Rsk Adjustment and Its Implcatons for Effcency and Equty n Health Care Systems). The objectves and methodology of rsk equalsaton dffer, dependng on the characterstcs of the health system of each country. In countres such as Australa where there are competng health nsurers, rsk equalsaton ams to remove ncentves to rsk select, whle n the Unted Kngdom (UK) rsk equalsaton ams to allocate resources equtably between government health organsatons. As wth most nternatonal research, dffcultes wth termnology are rfe. Some alternatve and assocated terms are gven n the table below. Table 2-1: Table of Rsk Equalsaton Termnology Rsk Equalsaton Rsk Adjustment Rsk Equalzaton Rensurance Rsk (structure) compensaton scheme or: Rskoausglechsverordnung (RSAV) Case-mx Adjustment Loss compensaton schemes Normatve Expendtures Weghted captaton Regon/ Country U.S.A. Australa Germany Belgum England (UK) Sources: Olver A J, Rsk Adjustng Health Care Resource Allocatons ; Schokkaert E, Van de Voorde C, Rsk adjustment and the fear of markets: the case of Belgum Note that the above terms are not necessarly restrcted to the regons lsted, and are sometmes used nterchangeably wthn an area. CARE Rsk Equalsaton Methodologes 3

11 Whle rensurance typcally has a dfferent meanng n an nsurance sense, n Australa t s also used to refer to rsk equalsaton. As the Australan Prvate Health Insurance Admnstraton Councl (PHIAC) states: "Rensurance s naptly named." Most countres use the termnology health nsurance to cover a range of approaches for fundng healthcare n advance. In South Afrca, health nsurance has a more lmted applcablty to those products sold by nsurance companes. Accordng to the defntons contaned n the Long-Terms and Short-Term Insurance Acts and the Medcal Schemes Act, all of 1998, health nsurance may not ndemnfy polcyholders for expendture on health servces. In South Afrca ndemnty health products are termed medcal schemes and are governed by the Medcal Schemes Act. All health nsurance sold by nsurers must be on a non-ndemnty bass. CARE Rsk Equalsaton Methodologes 4

12 3. Australa 3.1 Outlne of Health System In Australa there are two natonally subsdsed schemes: Medcare (the natonal publc health servce), provdes publcly funded health care wthout any fee for servce. The benefts are of an nternatonally hgh standard, accordng to Standard & Poor (S&P, Australan Health Insurance Report 2001 ). The Pharmaceutcal Benefts Scheme subsdses a hgh proporton of prescrpton medcatons bought from pharmaces (Australan Insttute of Health & Welfare (AIHW), Australa s Health 2000 ). Accordng to the Prvate Health Insurance Admnstraton Councl (PHIAC) n ts Annual Report , there were 44 regstered health benefts organsatons as at the end of June Of these 29 were open schemes (avalable to the publc) and 15 were closed. Most of these funds are regonally focused and, accordng to Standard & Poor, typcally collect n excess of 85% of ther premums n a sngle state. By the end of September 2000, 45.8% of the populaton had prvate health nsurance (S&P). Ths compares to the fgure of 50.2% n June 1984, whch had decreased to 30.5% at the end of June 1999 (AIHW). Hence t would appear that the declne n prvate health coverage has, at least temporarly, stablsed. Ths s largely due to the government s efforts n creatng ncentves to use prvate health nsurance, rather than relyng on the publc system. January 1999 saw the ntroducton of a 30% rebate on prvate health nsurance premums. The government s actons are n response to the growng pressure beng exerted on the publc health system as health care costs rse and the Australan populaton ages. By law, prvate health nsurers have to provde for open enrolment and communty ratng, whereby there s a sngle rate for adults (over 18 years of age), and double that rate for marred couples, regardless of dependent chldren. As of 1 July 2000, health funds are able to rsk rate based on age at date of entry to a fund. Ths s termed Lfetme Communty Ratng, or Lfetme Health Cover, whereby an nsurer can set hgher premum for new entrants aged 31 and over (S&P). Essentally, ths ams to recognse the length of membershp, and reward members who take out health nsurance whle young and mantan t. The process works by assgnng each member a "certfed age at entry", whch s ther age at whch they frst take out prvate health nsurance (wth hosptal cover). Members who jon at, or under the age of 30, pay a base rate premum, whle those members who jon after the age of 30 pay a premum loadng on top of the base rate. For each year a member s over the age of 30 on jonng, a loadng of 2% s added to the base rate. The maxmum loadng allowed s 70%, whch s equvalent to takng out health nsurance for the frst tme at age 65. Each health fund sets ts base rate for a certan level of cover. CARE Rsk Equalsaton Methodologes 5

13 In order to facltate transfers between nsurers, all health funds have to recognse the "certfed age at entry of members. Further, members can cease ther membershp wthout beng penalsed. A cumulatve 24-month absence wll be allowed throughout a member's lfetme wthout affectng ther certfed age at entry. After ths, however, ther certfed age at entry wll ncrease by one year for each addtonal year of absence. Lfetme Health Cover s ntended to mprove the rsk profle of the prvate health nsurance ndustry, as more young lves take nsurance out, makng nsurance more affordable. Together wth the 30% rebate polcy, t ams to allevate pressure on the publc health system. (Prvate Health Industry Branch, Lfetme Health Cover ) The maxmum watng perod s 2 months (except for obstetrcs and pre-exstng condtons whch have a 12 month watng perod). Insurers are further requred to offer a basc level of nsurance, and may also offer a supplementary level. The basc level covers the cost of a publc hosptal ward wth treatment by the patent s own doctor (otherwse termed sem-prvate ward n a publc hosptal ). The supplementary level covers the cost of prvate rooms n publc hosptals, and treatment n prvate hosptals. Addtonal non-hosptal benefts (so called ancllary benefts ) such as dental care, physotherapy, optcal servces, prescrpton drugs and alternatve medcne, are also offered by prvate nsurers. 3.2 Objectves of Rsk Equalsaton The man reason sted for rsk equalsaton (or rensurance ) n Australa s to support communty ratng, so as to allow funds to charge premums that are compettve, regardless of ther rsk composton (Prvate Health Industry Branch, Rensurance. The Industry Commsson ( Prvate Health Insurance, 1997) goes further to state that wthout rsk equalsaton the health ndustry could become unstable as medcal funds wth a large proporton of hgh rsk lves are forced to ncrease premums. In turn, low rsk members move away from these funds, leavng a hgher proporton of hgh rsk members, thus forcng the premums hgher. The Australan Prvate Hosptals Assocaton (APHA) n ther Comment on the Productvty Commsson s Prvate Health Insurance Dscusson Draft, dentfy a further role as reducng the ncentve to cream skm or rsk rate. CARE Rsk Equalsaton Methodologes 6

14 3.3 The Method Currently Used The procedure, whch s admnstered by the Prvate Health Insurance Admnstraton Councl (PHIAC), s based on two rsk adjusters: age and chronc llness. Rsk equalsaton apples to members who: are 65 years of age or over, or have been hosptalsed for longer than 35 days n any one year (as a proxy for chronc llness). Of the total benefts pad to members n these categores, 79% s redstrbuted on a pro rata bass. Ths s to ensure that funds have an ncentve to control costs and not to pass them onto the rsk pool (Prvate Health Insurance Admnstraton Councl (PHIAC), Rensurance ). Accordng to the Industry Commsson (Prvate Health Insurance, 1997), people wth prvate health nsurance aged 65 or above have a hosptal utlsaton rate that s 5.8 tmes that of those under the age of 65, emphassng the need for ths age category as a rsk adjuster. Out-of-hosptal and ancllary benefts are not ncluded n the rsk equalsaton calculaton. Australa State State State Pool Pool Pool Medcal Scheme Flow of funds Fgure 3.1: Flow of Funds n Australan Rsk Equalsaton System The current system of rsk equalsaton s state-based, wth each of the seven states havng ts own dstnct rsk equalsaton pool, as s llustrated n fgure 3.1 above. CARE Rsk Equalsaton Methodologes 7

15 Prvate Health Insurance Organsatons report data (membershp, hosptal benefts, and ancllary benefts) on a quarterly bass to the PHIAC (Prvate Health Insurance Admnstraton Councl (PHIAC), Rensurance ). The data s provded by each fund for each state, and s collected at the end of the quarter. 3.4 The Calculaton Membershp s defned n terms of Sngle Equvalent Unts (SEU), where a sngle member s regarded as 1 SEU, and all other categores (marred, famly etc.) are consdered as 2 SEUs. It s compulsory for organsatons wth 500 or more SEUs n a partcular state to partcpate n the rsk equalsaton scheme n that state. The frst step n the calculaton s to derve the average membershp of a fund (A ): A ( SEU q ) + ( SEU ) q 1 = 2 Where SEU represents Sngle Equvalent Unts, wth q the value at the end of the current quarter, and q-1 the value at the end of the prevous quarter. 3 months SEU q-1 SEU q Let B = benefts pad by fund durng the quarter. B = total benefts pad by all funds n the state j j A = total members wth prvate health nsurance n the state All the above benefts refer to those pad to members over 65 years of age, or to those members wth hosptalsaton for more than 35 days (n any one year). Now, the payment to the pool for fund (P ) s: P = [(weghted share of benefts based on membershp) (actual share)] x 0.79 = A B j B A j Clearly, f the actual share of benefts (B ) exceeds the share based on membershp, then the fund wll receve a payment, and vce versa (PHIAC, Rensurance ). CARE Rsk Equalsaton Methodologes 8

16 3.5 Problems wth the Current System APHA, n ts Comment on the Productvty Commsson s Prvate Health Insurance Dscusson Draft, suggest that snce rsk equalsaton s benefts based, there s an ncentve not to control costs. The Industry Commsson s report Prvate Health Insurance (1997), agrees wth ths sayng that t provdes sometmes perverse ncentves aganst full cost mnmsaton, and further that t lmts the scope for nnovatve products, elmnatng the possblty of specalsaton n health products (snce these would also fall under the scope of rsk equalsaton). The report shows that out-of-hosptal health care could be dscouraged snce only hosptal benefts are ncluded n the rsk equalsaton pool. Thus a health fund would encourage an old person to have an expensve hosptal treatment, rather than nexpensve, but on-gong, ambulatory care. In the former case, the fund would only pay 21% of the hosptal costs (79% s covered by the rsk equalsaton scheme), whlst wth ambulatory care t would have to cover the entre cost. Compounded wth ths, there s possbly an ncentve to seek methods of care that keep patents n hosptal for more than 35 days, by encouragng the use of long duraton (and more expensve) hosptal procedures, rather than short duraton (and less costly) treatments. However, the Industry Commsson found no evdence that ths s actually done, and were of the opnon that the mpact on effcency would be mnmal. An mportant ssue covered by the Industry Commsson s that of equty. Whle one of the objectves of rsk equalsaton s equty, t s questonable whether t s realsed. As the Industry Commsson states, rensurance s a relatvely blunt nstrument for rsk equalsaton, somethng that stems from the smplcty of the form currently n use. Through the use of only two rsk adjusters (age over 65 years and chronc llness), other rsk profles are neglected: Females compared to males Females of chld-bearng age compared to other females Number of dependents (chldren) Members aged n early 60s compared to younger aged members Very old people compared to people just over the age of 65 Any health fund wth a hgh proporton of these rsk groups wll be dsadvantaged by the current rsk equalsaton scheme, and creates the opportunty for funds to cream skm. Further, ths system creates ncentves to create exclusonary products, or so-called Swss cheese polces, whch compromses the objectves of rsk equalsaton. Such polces target less rsky groups, such as the young and healthy, wthout offcally preventng the hgh-rsk groups from jonng. An example of such a polcy would be one that excluded treatment for hp-replacements or dvertculoss (an age related dsease affectng the colon) - condtons that manly affect by the elderly. The result of ths s lower premums for the fund usng Swss cheese polces. CARE Rsk Equalsaton Methodologes 9

17 Clearly ths would be attractve to young members of other fu nds that cover agerelated procedures (hence wth hgher premums), who would have an ncentve to change funds, leadng to even hgher premums n the fund they left. It may also have the effect of attractng new members nto the prvate health ndustry. The net effect s dfferences n premum levels between rsk groups somethng that negates and undermnes communty ratng. The Industry Commsson emphasses that although the current system creates ncentves for Swss cheese polces when compared to a system of broader rsk adjusters, t does not encourage them. If no system of rsk equalsaton exsted, these polces would be prced at much lower premums, havng a greater mpact on the market (see Appendx A). Snce the current rsk equalsaton system s state based, wth each state havng ts own rsk equalsaton pool, t neglects to take the age dstrbuton of each state nto account. As such t does not compensate states wth older populaton dstrbutons. Another problem already encountered n 3.1 s that the Australan prvate health nsurance market appears to be contractng (Health Care Workng Party of the Socety of Actuares n Ireland (HCWP), Challengng Tmes ). Accordng to the HCWP, the publc health servce has mproved substantally, and more people are relyng on t. Further, those employers practcng self-nsurance do not have to partcpate n the rsk equalsaton. Ths tends to ncrease the average age of the populaton wth prvate health nsurance, and hence ncreases the level of communty rates, makng the publc system more attractve. Standard & Poor s Australan Health Insurance Report 2001 summarses the above problems succnctly: "The ndustry realses that ths system cannot contnue n ts current form wthout placng consderable pressure on nsurers themselves, and ultmately communty ratng." Pg The Evoluton of Rsk Equalsaton The concept of rsk equalsaton s not a new one to Australan health. Before 1970 the Natonal Health Act allowed organsatons to create Specal Accounts n ther medcal and hosptal beneft funds. These accounts were ntended to provde cover for members who suffered from pre-exstng condtons or chronc llness, and who would otherwse not be covered. The Government then rembursed the defcts n the accounts. The Health Benefts Trust Fund was created on 1 October 1976 to subsdse health funds for the cost of basc benefts for the chroncally ll. Funds were partly subsdsed for benefts pad n excess of 35 days hosptalsaton n any 12-month perod. The subsdy to the fund was passed through parlament each year. CARE Rsk Equalsaton Methodologes 10

18 On 1 June 1989, ths was changed to extend cover for the chroncally ll, and to further nclude the aged. Such a move was brought about largely through the actvtes of a commercal nsurer n the State of Vctora whch began to target young and healthy people. (HCWP, Challengng Tmes ) Under ths new method the benefts were redstrbuted between the funds, and the government subsequently stopped subsdes from 31 December The level of benefts that could be ncluded was reduced to 85% on 1 January 1995, as well as the ntroducton of two separate pools for basc and supplementary benefts. Sx months later (June 1995) ths was returned to a sngle pool, wth a further reducton n the level of benefts to 80%. Ths level was agan reduced on 1 October 1995 to 79% n an attempt to acheve a far dstrbuton of hosptal clams. Up untl ths tme, Open Funds were oblged to partcpate n the rsk equalsaton process n a state f they had 5% or more of the total membershp of the state. It was compulsory for Closed Funds wth 500 Sngle Equvalent Unts (SEUs), or more, resdng n the state to partcpate. At ths tme, the 5% Open Fund rule was dscarded, and the 500 SEU rule was extended to all funds. (PHIAC, Rensurance ) CARE Rsk Equalsaton Methodologes 11

19 4. Belgum 4.1 Outlne of Health System Belgum s health system s charactersed by voluntary and compulsory health care. All ctzens have compulsory health nsurance coverng major rsks such as hosptalsaton. For employees (ncludng cvl servants), those retred, wdows and ther dependents, ths compulsory nsurance extends to mnor rsks (e.g. GP, specalst, dental health and medcnes). Ths group covers about 88% of the populaton. Those people who are self-employed (the remanng 12%) are not covered, but can take up voluntary health nsurance (approxmately 85% do so). In addton to ths everybody has the opton to take out supplementary cover for nonbasc tems. (van Doorslaer and Schut, Belgum and the Netherlands Revsted ) Insurance s admnstered by fve non-governmental non-proft Natonal Assocatons of sckness funds (these assocatons comprse of a total of about 100 local sckness funds ), and a publc fund. A sckness fund s membershp can vary from to members (Schokkaert and Van de Voorde, Rsk adjustment and the fear of markets: the case of Belgum ). The health nsurance market s hghly concentrated wth 90% of the populaton beng covered by the three largest organsatons (van Doorslaer and Schut, Belgum and the Netherlands Revsted ). The Natonal Insttute for Sckness and Dsablty Insurance (Rjksnsttuut voor Zekte en Invaldtetsverzekerng [RIZIV] or Insttut d Assurance Malade et Invaldté [INAMI]) s a sem-publc agency (responsble to the Mnster of Socal Affars) that forms the central fund to whch all nsurers contrbute, or receve payments, n the rsk equalsaton mechansm. The health budget s set at the begnnng of the year and s largely based on the prevous year s budget ncreased at a growth rate (Schokkaert and Van de Voorde, Belgum: rsk adjustment and fnancal responsblty n a centralsed system ). Membershp of a sckness fund s compulsory. Members can choose whch fund to belong to, and can change every 3 months. Whle sckness funds cannot expel any members, t s not oblged to accept every applcant. However, a fund openly dscrmnatng would be subject to consderable socal and poltcal pressure. The publc fund serves as an nsurer of the last resort and has to accept all applcants (Schokkaert and Van de Voorde, Belgum: rsk adjustment and fnancal responsblty n a centralsed system ). The compulsory basc benefts offered, and the ther assocated socal contrbutons, are the same across all funds. Ths socal contrbuton s ncomedependent, and s jontly payable by both the employee and employer (unless the member s self-employed). The contrbutons are pad to the RIZIV (European Observatory on Health Care Systems, Health Care Systems n Transton: Belgum 2000 ). CARE Rsk Equalsaton Methodologes 12

20 In addton to ths, a small flat rate premum (whch s communty rated for all members of a partcular natonal assocaton of sckness funds) can be leved by the fund. Ths premum s not sgnfcant enough to nfluence a member s decson regardng the choce of fund. Sckness funds thus are forced to compete on the bass of effcency and qualty of servce, as well as what supplementary nsurance (n addton to the compulsory nsurance) s avalable. A separate premum can be charged for any such supplementary nsurance (Schokkaert and Van de Voorde, Rsk adjustment and the fear of markets: the case of Belgum ). Supplementary nsurance can also be offered by prvate nsurers, but sckness funds domnate the market. Note that prvate nsurers cannot offer compulsory nsurance cover. If a member takes out supplementary nsurance wth a sckness fund, then they must also use that fund for ther compulsory nsurance. The supplementary cover offered vares markedly (even for sckness funds n the same natonal assocaton), wth premums beng set accordng to the age and socal characterstcs of the member (Schokkaert and Van de Voorde, Belgum: rsk adjustment and fnancal responsblty n a centralsed system ). Apart from revenue rased from supplementary nsurance and the flat rate premums leved, a sckness fund s man source of ncome s from the socal contrbutons whch ts members pay to the RIZIV, and a government per-capta subsdy (fnanced from general taxaton), whch s based on the rsk profle of the sckness fund s members. The total health budget s allocated by the RIZIV to the Natonal Assocatons of sckness funds on the bass of a partally prospectve (rsk-equalsed) and partally retrospectve system (Schokkaert and Van de Voorde, Belgum: rsk adjustment and fnancal responsblty n a centralsed system ). The provders of health care (e.g. doctors) are ndependent and are largely pad by fee-for-servce. Members can choose whch doctor or specalst they wsh to consult, and are partally rembursed by ther sckness fund (about 75%). Hosptal care s provded by prvate, non-proft and publc hosptals (Schokkaert and Van de Voorde, Rsk selecton and the specfcaton of the conventonal rsk adjustment formula ). 4.2 Objectves of Rsk Equalsaton The rsk equalsaton scheme n Belgum ams to preserve unversal access to health care (Schokkaert and Van de Voorde, Belgum: rsk adjustment and fnancal responsblty n a centralsed system ). CARE Rsk Equalsaton Methodologes 13

21 4.3 The Method Currently Used RIZIV Socal Contrbuton Rsk equalsed allocatons Member Flat rate premum Sckness Fund Fgure 4.1: Flow of funds n Belgum Source: Schokkaert E, Van de Voorde C, Rsk adjustment and the fear of markets: the case of Belgum Resources are allocated to natonal assocatons of sckness funds by means of a mxed rembursement formula, whch conssts of a weghted average of rskequalsed expendture and actual expendture. It should be noted that the total (fxed) budget s dvded over the dfferent socal groups n proporton to actual expendture n each group, wth each allocaton beng treated separately. F s s N = ( )rω ω s + E s E s j (1 r)ω s Where: s F ω s ω N E r s s s the fnancal allocaton to sckness fund (from RIZIV) for socal group s s the budget for socal group s F s = ω s s the total budget ω s = ω s the rsk-equalsed expendture of sckness fund for socal group s s the actual expendture of sckness fund for socal group s s the weghtng parameter (as set by the RIZIV), where 0<r<1 (Schokkaert Erk, Van de Voorde Carne, Rsk adjustment and the fear of markets: the case of Belgum ). CARE Rsk Equalsaton Methodologes 14

22 Ths can be nterpreted as the dvson of the health budget ω (whch s fxed at the begnnng of the year) nto two components by r. The frst component rω s allocated prospectvely to sckness funds n proporton to ther rsk-equalsed expendtures. The second component (1-r)ω s allocated retrospectvely to sckness funds n proporton to ther actual expendture. Snce the second component s only allocated at the end of the year, the value for F (.e. the total amount allocated to sckness fund ) can only be determned then too. In order to facltate operatons, advanced payments (based on the prevous year s allocaton) are made to sckness funds durng the year. In 1995 the weghtng parameter r was set to Over tme ths has been ncreased to 0.30 n 2001 and In 2003 ths wll ncrease to Thus gradually, and n a cautous manner, more weghtng s beng gven to the rsk-equalsed expendture. If r s set to 1, then the system would be a completely prospectvely fnanced system, whle r set to 0 gves the pre-1995 system (except for the fact that the budget s now fxed n advance). (Schokkaert and Van de Voorde, Rsk adjustment and the fear of markets: the case of Belgum ) s The rsk-equalsed expendture ( N ) for each nsurer (and for each socal group s) s determned by a rsk equalsaton formula before the actual expendture s known. It represents the expected health care costs of nsurer on the bass of the rsk composton of ts members, and s calculated as follows: N n s s s s j j j = ω + n α ( x ) s x n j S Where: N s s n n s ω s α j j x x j s the rsk-equalsed expendture of nsurer for socal group s s the number of members n socal group s belongng to fund the total membershp n socal group s for all sckness funds s the budget for socal group s the coeffcent for rsk factor j sckness fund s value for rsk factor j the natonal average for rsk factor j (.e. average of j x ) Ths formula can be nterpreted as an equal per captal dstrbuton of the budget, wth a correcton term added to take nto account any dfferences n rsk. Note that only certan rsk factors apply to certan socal groups. Thus the summaton over j S means that t s taken over the factors relevant to socal group s (Schokkaert and Van de Voorde, Rsk adjustment and the fear of markets: the case of Belgum ). CARE Rsk Equalsaton Methodologes 15

23 The rsk factors for each socal group are defned as follows: Table 4-1: Rsk factors per socal group Socal Group Employees Actve Populaton: Invalds: Pensoners: Wdow(er)s & Orphans: Self-Employed Actve self-employed: Invald self-employed: Retred self-employed: Self-employed Wdow(er)s & Orphans: Rsk Factors Gender, age (40-49), unemployment, cvl servants, mortalty, dsablty, urbansaton (densty), urbansaton (qualty of housng) Number of dependants, mortalty Number of dependants, mortalty, urbansaton (qualty of housng) Age (70-99), mortalty Number of dependants, ncome, mortalty, urbansaton (densty), urbansaton (qualty of housng) Age (70-99), ncome Age (70-99), number of dependants, urbansaton (densty) Age (80-99), mortalty Source: Schokkaert Erk, Van de Voorde Carne, Belgum: rsk adjustment and fnancal responsblty n a centralsed system The coeffcents (whch were derved from regresson analyss of 1995 aggregate data) of the rsk factors for the actve and pensoner socal groups are defned n the followng tables: CARE Rsk Equalsaton Methodologes 16

24 Table 4-2: The Actve Populaton Varable j α j j x (defnton of varable) Women Proporton of females n group (,s) Age Proporton of members between ages n group (,s) Unemployment Proporton of long-term unemployed members n (,s) Cvl servants 9919 Proporton of cvl servants n (,s) Mortalty Average death rate/ total number of members n (,s) Dsablty Proporton of actve populaton wth at least 1 day dsablty Urbansaton (qualtatve) Urbansaton (densty) 1163 Indcator based on prncple component analyss of the proporton of prvate houses bult before 1919 & the proporton of prvate houses wth lttle comfort 334 Indcator based on prncple component analyss of populaton densty & the percentage of urbansed area Source: Schokkaert E, Van de Voorde C, Rsk adjustment and the fear of markets: the case of Belgum j Where an explanatory varable x s expressed as a proporton, the coeffcents can be nterpreted as the ncrease n expendture for the group. Thus, on average, a female member costs BEF more than a man. For pensoners, there are two dfferent groups: those wthout a preferental scheme (ndcated by a NP) and those wth (ndcated by a P). Table 4-3. Pensoners Varable j α j (NP) α j j (P) x (defnton of varable) Dependants Proporton of dependants n (,s) Urbansaton (qualtatve) Mortalty Indcator based on prncple component analyss of the proporton of prvate houses bult before 1919 & the proporton of prvate houses wth lttle comfort Average death rate/ total number of members n (,s) Source: Schokkaert E, Van de Voorde C, Rsk adjustment and the fear of markets: the case of Belgum CARE Rsk Equalsaton Methodologes 17

25 There has been much debate as to whch varables should be ncluded as rsk factors. In partcular, Medcal Supply varables (number of hosptal beds, number of provders of care) were very sgnfcant n the regresson analyss, but were excluded from the rsk equalsaton formula. The ratonale behnd ths was the belef that sckness funds should not be compensated for dfferences n cost due to dfferences n medcal supply, snce provder densty s hgh n Belgum. Regonal health cost dfferences have also receved attenton as possble canddates for ncluson as rsk factors (Schokkaert and Van de Voorde, Rsk adjustment and the fear of markets: the case of Belgum ). Once the budget has been fully allocated to the sckness funds, the dfferences between that allocated and actual expendture can be calculated as (F E ). A sckness fund s responsblty for any dfference s lmted. In 1995 t was lmted to 15% of the dfference, but ths was ncreased to 0.25 n Thus, f a fund has a surplus, t must set 25% asde n a reserve fund. If a defct s ncurred, then the sckness fund must use any reserves, or ncrease member s flat rate premum to fnance 25% of the defct. The remanng 85% s offset by surpluses arsng from other sckness funds. (Schokkaert and Van de Voorde, Rsk adjustment and the fear of markets: the case of Belgum ) 4.4 Problems wth the Current System Clearly the calculaton of the rsk-equalsed expendture reles heavly on the estmaton of the rsk factor coeffcents. Further, the adequacy of the rsk factors can be questoned. What rsk factors should be ncluded n the equalsaton mechansm s currently beng debated n Belgum partcularly compensaton for regonal dfferences n medcal expendtures, snce the current form s nadequate and leaves scope for rsk selecton (Schokkaert and Van de Voorde, Rsk adjustment and the fear of markets: the case of Belgum ). The rsk equalsaton formula s derved through regresson analyss of aggregate regonal data. Thus, whle rsk factors such as age are ncluded, the full expendture varaton related to these factors s not captured. In order for ths to be changed, a new rsk equalsaton formula based on ndvdual-level data s requred. Such data s not yet fully avalable (Van Doorslaer and Schut, Belgum and the Netherlands Revsted ). The sckness funds domnate the market for supplementary nsurance. Snce those members who take out supplementary cover wth a partcular sckness fund must also take out compulsory cover wth that sckness fund, there exst large ncentves to rsk select n the supplementary market n order to ndrectly rsk select for the compulsory market. (Schokkaert, Van de Voorde, Belgum: rsk adjustment and fnancal responsblty n a centralsed system ) CARE Rsk Equalsaton Methodologes 18

26 4.5 The Evoluton of Rsk Equalsaton The Health Insurance Law of August 9, 1963 (Law Leburton) set out the structure of the Belgan health care system, and theren created the RIZIV. Whle members pad contrbutons to the RIZIV, the government further subsdsed the sckness funds. The Law Leburton proposed that the government subsdy be allocated accordng to a rsk equalsaton mechansm whch would take nto account the hgher costs for certan groups wthn a fund s membershp. Ths ncluded pensoners, wdows/ wdowers, and the dsabled (See Appendx B for the exact formula proposed) (Schokkaert and Van de Voorde, Rsk adjustment and the fear of markets: the case of Belgum ). Ths rsk equalsaton mechansm was however, never adopted n practce due to the fact that t faled to fully compensate for the rsk groups. Instead, all expendtures were smply rembursed, offerng lttle ncentve to contan costs, as well as lttle ncentve to rsk select (Schokkaert and Van de Voorde, Belgum: rsk adjustment and fnancal responsblty n a centralsed system ). The Law of February 15, 1993 (the Law Moureaux) gave fnancal responsblty to each sckness fund, n the hope of promotng effcency and cost control. In Belgum greater mportance s placed on fnancal responsblty of each fund, rather than on promotng competton. The detals of ths law were set out n the Royal Decree of August 12,1994 whch brought about the ntroducton of the current rsk equalsaton system and prospectve fnancng n (Schokkaert and Van de Voorde, Rsk adjustment and the fear of markets: the case of Belgum ) Between 1995 and 1997, the rsk equalsaton was based on the followng rsk factors: age, sex, household composton, unemployment, ncome, mortalty rate, socal group (actves, pensoners, handcapped, wdows) and degree of urbansaton. In 1998, work dsablty status was ntroduced (Van Doorslaer and Schut, Belgum and the Netherlands Revsted ). 4.6 Proposed Changes As descrbed above, the weghtng parameter r and the fnancal responsblty level are slowly beng ncreased. In lne wth ths, the rsk equalsaton mechansm s subject to regular updates and mprovements on the bass of yearly advce from two unversty teams. It s antcpated that there wll be a drastc change and overhaul of the mechansm n the near future on the bass of better qualty ndvdual data (as opposed to the aggregate data prevously used). (Schokkaert and Van de Voorde, Belgum: rsk adjustment and fnancal responsblty n a centralsed system ) CARE Rsk Equalsaton Methodologes 19

27 5. Colomba 5.1 Outlne of Health System Colomban reforms n the early 1990s, n partcular Law 100 n 1993, amed to provde a basc level of health nsurance for all ndvduals, and to enhance effcency. For the purpose of health nsurance, people are dvded nto two groups: the Contrbutory Regme ( régmen contrbutvo ) and the Subsdsed Regme ( régmen subsdado ). The Contrbutory Regme comprses of those who have formal employment, or those who are self-employed (wth suffcent ncome.e. at least twce the mnmum wage) and n 1999 ths was 41% of the populaton. These members have to pay 12% (4% by the employee, 8% by ther employer) of ther ncome for health nsurance, wth 11% beng drectly spent on ther health benefts, and 1% beng used to subsdse the poor and low-ncome populaton belongng to the Subsdsed Regme. In addton to the payment from the Contrbutory Regme, the central government also contrbutes to the Subsdsed regme (Bossert et al, Appled research on decentralzaton of health systems n Latn Amerca). The Contrbutory Regme members can jon prvate health nsurance companes or Health Promotng Organsatons (EPS or Entdades Promotoras en Salud), whch has to provde a basc beneft package, whch s called the POS (Plan Oblgatoro de Salud). (Bertranou, Are market-orentated health nsurance reforms possble n Latn- Amerca? ). Those n the Subsdsed Regme can jon ether an EPS or a publc plan (ESS or Empresas Soldaras de Salud), whch s essentally an nsurance company managed by the relevant local government and specfcally desgned for ths group). The basc beneft package avalable to ths group (known as POSS or Plan Oblgatoro de Salud Subsdado) s less comprehensve than that for the employed group, but t s ntended to gradually ncrease the POSS to the level of the POS by 2001/2002. The nsurance funds offerng servces to the Subsdsed Regme are collectvely know as Admnstradoras del Régmen Subsdados (ARS). Apart from the basc packages, nsurers can offer supplementary nsurance for whch addtonal premums can be leved (Jack, Health nsurance reform n four Latn- Amercan countres ). 5.2 Objectves of Rsk Equalsaton The rsk equalsaton mechansm n Colomba ams to provde equal resources to all members, regardless of ther ablty to pay (González-Rossett and Ramírez, Enhancng the poltcal feasblty of health reform ). CARE Rsk Equalsaton Methodologes 20

28 Contrbutory Regme Members 11% Salary premum EPS Government 1% Salary FOSYGA 11% Salary premum UPC (Rsk equalsed payment) Subsdsed Regme Government fundng & 1% salary subsdy Fgure 5.1: Smplfed dagram of Colomba's health system Source: González-Rossett A, Ramírez P, Enhancng the poltcal feasblty of health reform 5.3 The Method Currently Used The contrbutons are pooled n the Soldarty and Guarantee Fund (FOSYGA or Fondo de Soldardad y Garanta). These funds are then allocated to EPSs on the bass of a rsk equalsaton captaton mechansm (Uthoff A, Trends n socal securty reform and the unnsured ) wth the followng rsk factors: age, gender and regon. (Yepes, The Colomban Experence ). Ths rsk-equalsed allocaton s called the UPC (undad de pago por captacón). For age and gender, the followng 3 rsk categores are defned (Bertranou, Are market-orentated health nsurance reforms possble n Latn-Amerca? ): Chldren under 1 year of age Women aged All others 5.4 Problems wth the Current System Accordng to Bossert ( Prvatsaton and payments: lessons for Poland from Chle and Colomba ) the rsk adjusters of age and sex explan only 3% of the rsk, whch leaves sgnfcant room for cream-skmmng. In order to counter ths, t s envsaged that catastrophc llness wll be added n the future CARE Rsk Equalsaton Methodologes 21