The Potential for Risk Rating in Competitive Markets for Supplementary Health Insurance: An Empirical Analysis

Many countries are considering the option of reducing the share of mandatory basic health insurance (BI) and to increasingly rely on voluntary supplementary health insurance (SI) schemes to cover health care expenditures. In theory, competitive markets for SI tend to risk-rated premiums. After discussing the determinants of risk rating in competitive SI markets, we estimate the potential for risk rating due to the transfer of benefits from BI to SI coverage. For this purpose, we simulate several scenarios in which benefits covered by BI are transferred to competitive markets for SI. We use a dataset from one of the largest insurers in the Netherlands, to calculate the potential premium range for SI resulting from this transfer. Our findings show that, by adding risk-factors, the minimum SI premium decreases while the maximum increases. Moreover, we observe that risk rating primarily affects the maximum premium. The magnitude of the premium range is especially substantial for benefits such as medical devices and drugs. For these services the potential consequences of risk rating in terms of access to affordable insurance coverage may be considered not “socially acceptable”, since they result in high SI-premiums for certain risk/income groups. Therefore, when transferring benefits from BI to SI policy makers should be aware of the implications for the affordability of insurance coverage.