Competition and Solidarity in European Basic and Supplementary Health Insurance Markets: Economic and Legal Analysis

This chapter provides an economic analysis of different regulatory instruments commonly adopted to achieve solidarity in competitive markets for basic health insurance. Furthermore, we test the legal suitability of these tools by analysing whether they conform with European Community (EC) law and jurisprudence. Our findings can be summarised as follows. Risk-compensation schemes are the preferred (i.e. first-best) regulatory mechanism because they can potentially achieve an “acceptable level of solidarity” without hindering free trade and competition. Premium- and excess-loss- compensation schemes follow as second-best regulatory tools because they guarantee solidarity in competitive health insurance markets but they also confront policy makers with a trade-off between solidarity and efficiency. Despite their popularity in many countries, premium rate restrictions and open enrolment are not recommended and should be avoided because they reduce efficiency and are unnecessary, not proportional and undesirable instruments to achieve solidarity in competitive health insurance markets. Our conclusions are relevant for a number of European countries with competitive social health insurance, and in particular Ireland and the Netherlands. In these two countries, the design of the basic and supplementary health insurance schemes should be in conformity with EC-law, i.e. premium rate restrictions and open enrolment regulations should be replaced, if necessary, with premium- and/or excess-loss- compensation schemes, to complement the “best” available risk equalisation system.