Unfortunately, the methods to assess relative risk or determine appropriate payment adjustments are still in their infancy. They are relatively weak, often require data not readily available when needed, and may incorporate unwanted incentives for inefficient behavior. Several employers are using different methods to make risk-adjusted payments to health plans, and a number of public and private research projects are under way to build better methods. Slow progress in risk-adjustment methodologies is probably the single greatest barrier to making competition a more positive force in the health care arena.

Purchasing cooperatives The mechanisms as well as the methods needed to make risk-adjusted payments are inadequate in significant respects. For example, small employers lack the resources to manage risk-adjusted contributions for the plans they offer to employees. Some kind of external mechanism is needed to handle the process, for example, as the government does in its administration of capitated payment for HMOs enrolling Medicare beneficiaries. Purchasing cooperatives have been suggested as one such mechanism. Such cooperatives might also reduce marketing and other costs and allow employees of small employers a choice among health plans. However, if multiple, competitive purchasing cooperatives were created rather than the single entity envisioned by most managed competition proposals, then problems of risk selection across cooperatives would likely arise and savings in marketing and other costs would diminish.

Taken together, the above steps should provide individuals with new protection from restrictions on their access to health coverage related to their past, present, or expected future health status. However, they are unlikely to eliminate completely the advantages health plans receive from favorable risk selection and the incentives for plans to engage in the selection strategies described in Chapter 5. To further discourage discrimination against higher-risk individuals or "skimming" of lower risk individuals, it will probably be necessary to monitor health plan enrollment and disenrollment patterns and their marketing, management, and other strategies. The design of practical and reasonably effective policies will be a challenge.

Subsidizing Coverage

As noted above, eliminating or significantly reducing medical underwriting and risk segmentation will in the short term do little to make health benefits more affordable for many employers and employees, especially those in low-wage industries. Costs might even increase for some groups and individuals now in low-risk pools, and some low-risk individuals might avoid buying insurance until they thought they needed costly health care services. Overall, in the absence of some financial assistance to some

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