Competition among social health insurers: A case study for the Netherlands, Belgium and Germany

The idea that competition generally enhances efficiency is hardly under discussion anymore. The market for health insurance is, however, no ordinary market as asymmetrical information can lead to adverse selection and cream skimming. Adequate risk-adjustment removes the incentives for cream skimming and balances the negative consequences of adverse selection. In an attempt to enhance efficiency, the Dutch government in 1992 introduced price competition between social health insurers in combination with risk-adjusted capitation payments. Our estimation results indicate that this has not resulted in altering market shares. Also in Belgium and Germany social health insurers are faced with incentives to operate more efficiently. These countries encounter similar difficulties. Because equity considerations are high valued features of the Dutch health insurance system, competition is difficult to implement. We recommend that the current capitation formula should be refined and that the insurers should be given more room for selective contracting of health care providers.