Abstract
If consumers have a choice of health plan, risk selection is often a serious problem (e.g., as in Germany, Israel, the Netherlands, the United States of America, and Switzerland). Risk selection may threaten the quality of care for chronically ill people, and may reduce the affordability and efficiency of healthcare. Therefore, an important question is: how can the regulator show evidence of (no) risk selection? Although this seems easy, showing such evidence is not straightforward. The novelty of this paper is two-fold. First, we provide a conceptual framework for showing evidence of risk selection in competitive health insurance markets. It is not easy to disentangle risk selection and the insurers’ efficiency. We suggest two methods to measure risk selection that are not biased by the insurers’ efficiency. Because these measures underestimate the true risk selection, we also provide a list of signals of selection that can be measured and that, in particular in combination, can show evidence of risk selection. It is impossible to show the absence of risk selection. Second, we empirically measure risk selection among the switchers, taking into account the insurers’ efficiency. Based on 2-year administrative data on healthcare expenses and risk characteristics of nearly all individuals with basic health insurance in the Netherlands (N > 16 million) we find significant risk selection for most health insurers. This is the first publication of hard empirical evidence of risk selection in the Dutch health insurance market.
Highlights
Since the early 1990s, consumers in an increasing number of countries have had a choice of health plan for basic health insurance
We provide a conceptual framework for showing evidence of risk selection in competitive health insurance markets
Even with the best risk adjustment formulas currently in practice, the insured and insurers are confronted with substantial incentives for risk selection
Summary
Since the early 1990s, consumers in an increasing number of countries have had a choice of health plan for basic health insurance. The conclusion could be that, if these average residual expenses are different from zero for at least one insurer, with a certain level of statistical significance, there is risk selection because at least one insurer is over- or undercompensated and the cross-subsidies as intended by the regulator are not fully achieved.. To measure signals of selective enrollment and disenrollment the regulator could submit so-called ‘mystery’-applications to insurers and insurance agents, and let ‘mystery’-insured ask for more information by letter, email, phone, and internet: this would seek to compare experiences from overcompensated (very healthy) persons and undercompensated persons (unhealthy patients with specific chronic conditions) Another option is to hold interviews with insured consumers who switched insurers or health plans and ask them: Why did you switch? The regulator can take actions to reduce or avoid negative effects.
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
