Abstract
Many health insurance markets are organized by principles of regulated competition. Regulators of these markets typically apply risk equalization (aka risk adjustment) and risk sharing to mitigate risk selection. Risk equalization and risk sharing can have various positive and negative effects on efficiency and fairness. This paper provides a comprehensive framework for ex-ante evaluation of these effects. In a first step, we distinguish 22 potential effects. In a second step, we summarize and discuss quantitative measures used for evaluating risk equalization and risk sharing schemes in academic research. To underline the relevance of our work, we compare our framework with an existing framework that was previously used in the Dutch regulated health insurance market. We conclude that this framework is incomplete and uses inappropriate measures. To avoid suboptimal policy choices, we recommend policymakers (1) to consider the entire spectrum of potential effects and (2) to select their measures carefully.