The Performance of Risk Adjustment Models in Colombian Competitive Health Insurance Market

20 Pages Posted: 31 Aug 2014

See all articles by Alvaro Riascos

Alvaro Riascos

Universidad de los Andes, Colombia - Department of Economics

Eduardo Andres Alfonso Sierra

Quantil S.A.S.

Mauricio Romero

ITAM, Centro de Investigación Económica

Date Written: August 12, 2014

Abstract

We introduce new risk groups to a standard capitation formula and evaluate risk selection incentives of insurers. The study uses a unique data set of almost 24 million affiliates to Government’s mandatory health insurance system. This data set is very rich in the sense of reporting all claims during year 2010, basic demographic variables, initial diagnostic, health services, pharmaceuticals used, etc. It compromises more than 300 million claims. We construct two diagnostic related groups: an adaptation of the 3M algorithm, and a ad hoc diagnostic related group constructed by the authors. Using standard linear capitations formulas we evaluate incentives for cream skimming using several measures. In general, results show a notable improvement in the explanatory power of health expenditures by introducing the ad hoc diagnostic related groups to the standard Colombian risk adjustment formula. With the new risk groups the R2 of the model is 13.53% as opposed to 1.45% of the current formula. Furthermore, for users in the highest expenditure quintile, expected expenditure is 71% of actual expenditure, as opposed to 27% under the current formula. This suggest there is much space for improving the current Colombian capitation formula using information that is currently available.

Keywords: Risk adjustment, Diagnostic Related Groups, Risk Selection

JEL Classification: I11, I13, I18

Suggested Citation

Riascos, Alvaro and Alfonso Sierra, Eduardo Andres and Romero, Mauricio, The Performance of Risk Adjustment Models in Colombian Competitive Health Insurance Market (August 12, 2014). Documento CEDE No. 2014-33. Available at SSRN: https://ssrn.com/abstract=2489183 or http://dx.doi.org/10.2139/ssrn.2489183

Alvaro Riascos (Contact Author)

Universidad de los Andes, Colombia - Department of Economics ( email )

Carrera 1a No. 18A-10
Santafe de Bogota, AA4976
Colombia

Eduardo Andres Alfonso Sierra

Quantil S.A.S. ( email )

Bogotá
Colombia

Mauricio Romero

ITAM, Centro de Investigación Económica ( email )

Camino a Santa Teresa No. 930
Col. Héroes de Padierna
Ciudad de México
Mexico

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