Elsevier

Health Policy

Volume 65, Issue 1, July 2003, Pages 75-98
Health Policy

Risk adjustment and risk selection on the sickness fund insurance market in five European countries

https://doi.org/10.1016/S0168-8510(02)00118-5Get rights and content

Abstract

From the mid-1990s citizens in Belgium, Germany, Israel, the Netherlands and Switzerland have a guaranteed periodic choice among risk-bearing sickness funds, who are responsible for purchasing their care or providing them with medical care. The rationale of this arrangement is to stimulate the sickness funds to improve efficiency in health care production and to respond to consumers’ preferences. To achieve solidarity, all five countries have implemented a system of risk-adjusted premium subsidies (or risk equalization across risk groups), along with strict regulation of the consumers’ direct premium contribution to their sickness fund. In this article we present a conceptual framework for understanding risk adjustment and comparing the systems in the five countries. We conclude that in the case of imperfect risk adjustment—as is the case in all five countries in the year 2001—the sickness funds have financial incentives for risk selection, which may threaten solidarity, efficiency, quality of care and consumer satisfaction. We expect that without substantial improvements in the risk adjustment formulae, risk selection will increase in all five countries. The issue is particularly serious in Germany and Switzerland. We strongly recommend therefore that policy makers in the five countries give top priority to the improvement of the system of risk adjustment. That would enhance solidarity, cost-control, efficiency and client satisfaction in a system of competing, risk-bearing sickness funds.

Introduction

Health system reforms have been taking place in many countries over the past two decades. Despite the variety of systems and reforms, the objectives guiding these reforms have been rather similar. These objectives can be shortly summarised as: efficiency and client satisfaction in health care together with solidarity and the effective control of aggregate spending. In this paper we focus on the reforms in five European countries with a so-called Bismarck-style mandatory sickness fund insurance: Belgium, Germany, Israel, the Netherlands and Switzerland.

In the 1990's the following measures have been taken in these five countries: (1) enlarging the consumer choice of sickness fund, and/or (2) increasing the financial responsibility of sickness funds. The citizens in these five countries now have a guaranteed periodic choice among risk-bearing sickness funds who are responsible for purchasing their care or providing them with medical care. The rationale of this arrangement is to stimulate the sickness funds to improve efficiency in health care production and to respond to consumers’ preferences. To achieve solidarity, all five countries have implemented a system of risk-adjusted premium subsidies (or risk equalization across risk groups), with strict regulation of the consumers’ direct premium contribution to their sickness fund.

The recent developments in the financing and organization of health care in these countries are described in five separate articles in this special issue [1], [2], [3], [4], [5]. At first glance one might conclude from these articles that the financing systems in these countries are very different from each other. For example, in Israel ‘capitation’ as an allocation mechanism is strongly emphasised, while in Germany and Switzerland the term ‘capitation’ has no meaning in this context. Another difference is that in Germany and Switzerland consumers make their total contribution directly to the sickness funds, while in Israel all mandatory contributions are paid into a single fund which then allocates payments to the sickness funds. In Belgium and the Netherlands there is a mixture of these two payment flow systems.

Despite these apparent differences a closer look provides clear similarities in the theoretical and conceptual background of the financing system in the five countries. A common element in all five countries is that in case of imperfect risk adjustment the sickness funds have financial incentives to select the predictably profitable consumers, i.e. clients for whom the sickness fund's revenue (far) exceeds the actuarially predicted expenses. This selection and the resulting market segmentation may seriously threaten solidarity, efficiency and quality of care (Section 2.4).

The purpose of this article is to compare the recent developments on risk adjustment and consumer choice of sickness fund in these countries: What are the similarities and differences? Are solidarity, efficiency and quality of care threatened by selection? What can these countries learn from each other? What can other countries learn?

To help the reader to compare the financing systems in the five countries we first present a conceptual framework for understanding risk adjustment. Because of the different terminology used in the five countries this required a common terminology (see the Glossary). Although this common terminology clearly is not the first choice in each of the countries to describe their system, the conceptual framework may deepen the understanding of the system in each of the countries. In particular it may help to understand the basic problem as well as the potential solutions.

This article is organized as follows. In Section 2 we present the conceptual framework for comparing risk adjustment in several countries. Section 3 compares the background and rationale of risk adjustment in Belgium, Germany, Israel, the Netherlands and Switzerland. Section 4 compares the practice of risk adjustment in these countries. In Section 5 we compare the consumer mobility and risk selection in the five countries and discuss the extent to which the consumer choice of sickness fund is exploited in practice. Section 6 discusses the conclusions and some expected future developments.

Section snippets

How to combine solidarity and consumer choice of sickness fund?

A sickness fund market in which consumers may periodically choose an other risk-bearing sickness fund, creates a great challenge for policy makers: how to achieve solidarity in such a market? The solidarity principle, which is highly valued in Europe, implies that high-risk and low-income individuals receive a subsidy to increase their access to health insurance coverage. In this paper we will use the term solidarity in the sense of subsidizing solidarity, and not in the sense of

The background and rationale of risk adjustment in five European countries

In the 1990s in all five countries (Belgium, Germany, Israel, the Netherlands and Switzerland) government has implemented a system of risk adjustment in the market for mandatory sickness fund insurance and took measures to stimulate the sickness funds to contain costs. However, due to different starting situations the rationale of risk adjustment as well as the cost-containment measures were not the same in the five countries.

In the late 1980s individual sickness funds in Germany, Israel and

The practice of risk adjustment and risk sharing in the year 2000

In all five countries risk adjustment is being applied to the mandatory sickness fund insurance. The benefits package in all five countries covers physician services, hospital care an prescription drugs. Differences in benefits package among the countries are indicated in Table 3. Total expenses covered by the mandatory sickness fund insurance in Belgium are about 65% of the total health expenses, while in the Netherlands (where the mandatory sickness fund insurance covers only 62% of the

Consumer mobility and risk selection

In all countries except Belgium there is a legally determined open enrolment requirement. The details of the open enrolment regulation differ from country to country (Table 6). In Belgium sickness funds do not have the legal duty to enrol all interested applicants12

Rationale of consumer choice of sickness fund

For the US-oriented readers of this paragraph it may be helpful to point at the US-equivalent of some European terminology:

EuropeanUS
Consumer choice of sickness fundConsumer choice of health plan [20]
Regulated competitionManaged competition
Government regulationSponsor's management [21]
Competition policyAntitrust policy

From the mid-1990s the consumers in all five countries have a guaranteed periodic choice among risk-bearing sickness funds. In the literature this consumer choice of sickness fund

Glossary

Acceptable expenses
The costs of services and intensity of treatment that government has decided to be acceptable to be subsidized
Consumer choice of sickness fund
The extent to which consumers have the guaranteed option to periodically choose an other sickness fund
Financial responsibility of a sickness fund
The extent to which an additional euro spent by an individual sickness fund is reflected in its own financial result
Income solidarity
Cross-subsidies from the high-income to the low-income

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