Skip to main content Skip to secondary navigation
Publication

Falling Ill Raises the Health Insurer’s Administration Bill

In many countries governments use payments systems to compensate health insurers more for higher cost enrollees. However, little empirical research has examined whether these payments systems should also include health insurers’ administrative costs. We provide two sources of evidence that health insurers with a more morbid population have higher administrative costs. First, we show at the customer level a causal relationship between individual morbidity and individual administrative contacts with the insurer, using the weekly evolution of individual customer contacts (calls, emails, physical encounters etc.) of a large Swiss health insurer. Using a quasi-experimental design, we find that the onset of a chronic illness causes on average a persistent increase in individuals’ contacts with the health insurer of about 40%. Second, we provide evidence that this relationship also holds for administrative costs at the insurer level. We study twenty years of Swiss health insurance market data and find a positive elasticity of around 0.4 indicating that, all else equal, an insurer who spends 1% more on medical claims faces about 0.4% higher administrative costs.

Author(s)
Rudy Douven
Lukas Kauer
Publication Date
June 28, 2022