TABLE 2.

Payment systems included in the empirical simulations

Abbreviation	Description
Base model	Risk adjustment (RA) with risk adjustors based on age/gender; socioeconomic variables; and morbidity indicators based on prior use of: prescribed drugs, inpatient and outpatient hospital treatments, durable medical equipment and physiotherapy.
MYHC adjustor	Base model + dummy variables for groups based on multiple‐year high spending. Groups defined on the basis of the threshold values in Table 1.
MYHC pooling	Base model + pooling of residual spending above a threshold for people in the top‐15% of spending in each of 3 prior years. RA coefficients are optimized for the presence of the high‐risk pool, and vice versa.
MYLC adjustor	Base model + dummy variables based on the group with multiple‐year low spending. Groups defined on the basis of the threshold values in Table 1.
MYLC constraint	Base model + constraint on the estimated RA coefficients that reduces the overcompensation for people with multiple‐year low spending by 50%.
MYHC adjustor & MYLC adjustor	Base model + dummy variables for groups based on multiple‐year high/low spending. Groups defined on the basis of the thresholds in Table 1.
MYHC pooling & MYLC constraint	Base model + pooling of residual spending above a threshold for people in the top‐15% of spending in each of 3 prior years + constraint on the estimated RA coefficients that reduces the overcompensation for people with multiple‐year low spending by 50%. RA coefficients are optimized for the presence of the high‐risk pool, and vice versa.