Introducing Risk Adjustment and Free Health Plan Choice in Employer-Based Health Insurance: Evidence from Germany

Adam Pilny, Ansgar Wübker () and Nicolas Ziebarth ()

No 10870, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: To equalize differences in health plan premiums due to differences in risk pools, the German legislature introduced a simple Risk Adjustment Scheme (RAS) based on age, gender and disability status in 1994. In addition, effective 1996, consumers gained the freedom to choose among hundreds of existing health plans, across employers and state-borders. This paper (a) estimates RAS pass-through rates on premiums, financial reserves, and expenditures and assesses the overall RAS impact on market price dispersion. Moreover, it (b) characterizes health plan switchers and investigates their annual and cumulative switching rates over time. Our main findings are based on representative enrollee panel data linked to administrative RAS and health plan data. We show that sickness funds with bad risk pools and high pre-RAS premiums lowered their total premiums by 42 cents per additional euro allocated by the RAS. Consequently, post-RAS, health plan prices converged but not fully. Because switchers are more likely to be white collar, young and healthy, the new consumer choice resulted in more risk segregation and the amount of money redistributed by the RAS increased over time.

Keywords: SOEP; German sickness funds; adverse selection; free health plan choice; employer-based health insurance; risk adjustment; health plan switching (search for similar items in EconPapers)
JEL-codes: D12 H51 I11 I13 I18 (search for similar items in EconPapers)
Pages: 48 pages
Date: 2017-06
New Economics Papers: this item is included in nep-eur, nep-hea and nep-ias
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

Published - published in: Journal of Health Economics , 2017, 56, 330-351

Downloads: (external link)
https://docs.iza.org/dp10870.pdf (application/pdf)

Related works:
Journal Article: Introducing risk adjustment and free health plan choice in employer-based health insurance: Evidence from Germany (2017)
Working Paper: Introducing Risk Adjustment and Free Health Plan Choice in Employer-Based Health Insurance: Evidence from Germany (2017)
Working Paper: Introducing risk adjustment and free health plan choice in employer-based health insurance: Evidence from Germany (2017)
Working Paper: Introducing Risk Adjustment and Free Health Plan Choice in Employer-Based Health Insurance: Evidence from Germany (2017)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:iza:izadps:dp10870

Ordering information: This working paper can be ordered from
IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany

Access Statistics for this paper

More papers in IZA Discussion Papers from Institute of Labor Economics (IZA) IZA, P.O. Box 7240, D-53072 Bonn, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Holger Hinte ().