The microeconomics and econometrics of bonus systems in health insurance

Abstract

An impartial observer of the ongoing international discussion on cost containment in health care would be struck by the one-sidedness of the argument. Focus is invariably on cost-sharing as a sanction meted out to the user of services, both in research and in policy debates (Cairns and Snell, 1978; Feldstein, 1973; Newhouse et al., 1981). The alternative of creating incentives to non-users of medical care seems to be just about forgotten. However, private health insurers in Western Germany have been offering rebates as well as experience-rated bonuses to their members for several years, and their experiences should be of interest internationally (Uleer, 1981). Therefore, a project was initiated by the Robert Bosch Foundation in 1981 with the objective of systematically investigating the properties of such contracts. In particular, this contribution is based on two working hypotheses: First, rebates and bonus options are deemed to be at least as attractive to insureds as conventional cost sharing alternatives. Second, these new contracts are predicted to dampen utilization of services very much like traditional cost-sharing methods, with experience-rated bonus options having even more impact than fixed rebates for no claims.