Do Managed Care Plans Improve Efficiency? - New Evidence from Switzerland

Rationale: Managed Care plans claim that they improve efficiency of the delivery of health care services. According to several Swiss studies, health care expenditures of people choosing these plans are apparently below average expenditures. Is this due to the efficient treatment patterns applied by MC plans or only to the preferable risk structure of the enrolled? The intention to introduce MC as an option in social health insurance in Switzerland was to offer a lower cost plan. The unpleasant but inevitable risk selection related to these plans - dampening solidarity - was in the beginning expected to be balanced out by (demographic) risk equalization. Since risk equalization fails to do so, the identification of true efficiency becomes more and more important. Objectives: The objective of this research is to disentangle true efficiency gains of MC plans from risk selection effects. In contrast to other research in this field, the analysis is not limited to the comparison of HCE in different health plans. It takes other factors as administration costs and effects of reinsurance contracts into account. The paper describes also the distribution of MC profits among insurer, enrollees and physicians. Methodology: The analysis is based on the HCE of 20,700 insured in 12 different MC plans spread among the country in 2005. We include the financial results of all plans and all health care contracts as well as the fair premiums (and fair rebates) for the different plans derived from these figures. Financial results can be traced back to 2002. To identify risk selection we refer to the recently developed capitation formula applied in this market. This formula combines demographic and pharmaceutical cost grouping with two additional risk factors. The first measuring the effect of inpatient stays during the preceding year, the second corrects risk differences revealed by different deductible levels chosen by the enrollee. By comparing effective HCE of the plans with the budget figures derived from the capitation formula we can calculate cost saving effects of these plans after correction for selection captured by the formula. Results: The efficiency effect of all plans diminishes monotonically with every refinement of the capitation formula (historically Swiss capitation started with a demographic capitation and constantly improved over the last 16 years). Today the efficiency effect is about 10% and one fourth of the selection effect, all relevant costs taken into account. But these results have to be qualified. In 2005 all plans have been benchmarked with a simpler formula and were able to produce substantial gains with respect to it. The PCG formula was introduced in 2006. Based on the experience that MC plans were able to react on every step of formula refinement in the past, it is plausible to assume that MC plans will do a better job, as soon as they get familiar with the new benchmark. After all good capitation calculation seems to be a necessary condition for good performance of MC plans.