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Health insurance purchasing cooperatives (HIPCs) combine the resources of governmental entities, employers, and consumers to manage competition and motivate efficiency among health plans. They need incentive-conscious payment methods that fulfill three functions. First, health plans must be motivated to search continually for better methods of service delivery; the HIPC should not pay more to health plans that experience higher costs due to inefficiency. Second, health plans must be discouraged from selectively enrolling healthy individuals and avoiding the chronically ill; the HIPC should make larger payments to those plans serving a high-risk population. Third, health plans must be motivated to evaluate the cost-effectiveness of new technologies and procedures; the HIPC should rigorously negotiate health plan requests for premium increases over time.
James C. Robinson (Fri,) studied this question.