Addressing market segmentation and incentives for risk selection: how well does risk equalisation in the Irish private health insurance market work?

Keegan, Conor; Teljeur, Conor; Turner, Brian; Thomas, Steve

Addressing market segmentation and incentives for risk selection: how well does risk equalisation in the Irish private health insurance market work?

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Published Version

Date

2017-03

Authors

Keegan, Conor

Teljeur, Conor

Turner, Brian

Thomas, Steve

Publisher

Economic and Social Studies

Abstract

This study assesses the efficacy of Ireland’s recently introduced risk equalisation scheme in its voluntary health insurance market. Robust risk equalisation is especially important in an Irish context given acute risk segmentation and incentives for risk selection that have evolved within the market. Using uniquely acquired VHI data (N=1,235,922) this analysis assesses the predictive efficacy of both current and alternative risk equalisation specifications. Results suggest that the low predictive power of the current risk equalisation design (R2 = 6.8 per cent) is not appropriately correcting for anti-competitive incentives and asymmetries in the market. Improvements to the current design could be achieved through the introduction of diagnosis-based risk adjusters.

Keywords

Risk equalisation , Efficacy , Predictive , Risk adjusters , Health insurance , Ireland

Citation

Keegan, C., Teljeur, C., Turner, B. and Thomas, S. (2017) 'Addressing market segmentation and incentives for risk selection: how well does risk equalisation in the Irish private health insurance market work?', Economic and Social Review, 48(1), pp. 61-84.