Session: Geographical Differences
Room: Hollister B14
Time: Mon 16:45-18:15

Presenter: Sebastian Bauhoff (Harvard University. Department of Health Care Policy)

Discussant: Amelie WuppermannUniversity of Munich

Abstract

Competitive health insurance plans face incentives to exploit unpriced heterogeneity by selecting low-risk individuals. Risk-adjusting payments to plans mitigates the incentives for this "cream-skimming" but can reduce efficiency. This selection-efficiency trade-off also arises when accounting for geographic variations in costs, which may be due to legitimate (e.g. health risk) and illegitimate factors (e.g. practice styles and preferences for care). The German Social Health Insurance does not account for geographic differences in costs, thereby generating residual incentives for sickness funds to select against relatively more expensive areas, such as West Germany. This paper evaluates whether funds vary their recruitment efforts towards prospective members from different locations. To identify plan behavior separately from concurrent demand-side adverse selection, I implement a double-blind audit study in which health plans receive requests from fictitious applicants. I compare response rates for letters, emails, and phone calls for applicants from East and West Germany. The findings suggest that plans are 1.7-2.7 percentage points less likely to respond to West German applicants and are also less likely to follow-up. These results are consistent with cream-skimming and may operate through variations in recruitment efforts by local offices. Potential policy responses include both more or less regulation, or the use of "sponsors" to manage competition.

Key Terms

Cream-skimming, selection, risk adjustment, social health insurance, Germany, geography

Authors:

Sebastian Bauhoff (Harvard University. Department of Health Care Policy)