Managing risk selection incentives in health sector reforms

The object of the paper is to review theoretical and empirical contribution s to the optimal management of risk selection incentives ('cream skimming') in health sector reforms. The trade-off between efficiency and risk select ion is:fostered in health sector reforms by the introduction of competitive mechanisms such as price competition or prospective payment systems. The e ffects of two main forms of competition in health sector reforms are observ ed when health insurance is mandatory: competition in the market for health insurance, and in the market for health services. Market and government fa ilures contribute to the assessment of the: different forms of risk selecti on employed by insurers and providers, as the effects of selection incentiv es on efficiency and their proposed remedies to reduce the impact of these perverse incentives. Two European (Netherlands and Spain) and two Latin Ame rican (Chile and Colombia) case studies of health sector reforms are examin ed in order to observe selection incentives, their effects on efficiency an d costs in the health system, and regulation policies implemented in each c ountry to mitigate incentives to 'cream skim' good risks. Copyright (C) 199 9 John Wiley & Sons, Ltd.