Risk-Selection via Supplementary Health Insurance in Universal Mandatory Health Insurance for Basic Services

As discussed in previous chapters, supplementary health insurance (SI) markets have been increasingly viewed by policymakers and analysts worldwide as an alternative to collective financing that effectively enhances efficiency and increases consumer choice. This is supported by evidence from several OECD countries, where trends and projections suggest a likely growth in the share of SI in health care finance. Although an increasing reliance on competitive and unregulated markets for SI is considered as a vehicle to increase efficiency and to decrease public health expenditures (and thereby the pressure on public finances), it may well achieve these goals at the expenses of affordability and access to health insurance and health care services for (low-income) high-risk groups. In particular, this happens because in the absence of adequate regulation or cross-subsidies competition might induce insurers to differentiate premiums according to individuals’ risk profiles (risk-rating) or exclude some risks from coverage (risk-selection). These strategies may result in high premiums and partial or even absent coverage for high-risk groups in SI markets. Also the expansion of unregulated competitive SI markets might provide incentives for insurers to use it as a tool for risk-selection in universal health insurance markets for basic services (BI). In this chapter, we develop a conceptual framework to analyse under which conditions insurers are likely to use SI for favourable risk-selection in BI. This framework is also tested empirically in five countries, Belgium, Germany, Israel, the Netherlands and Switzerland, in which risk-selection via SI is feasible. Our findings suggest that the probability that SI is and will be used for risk-selection varies across countries, and it is intimately related to the differences across countries in institutional and regulatory frameworks of BI and SI markets. This chapter concludes by discussing the main policy instruments that can be implemented in the different countries to limit the probability that SI is or will be utilised as a selection device.