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The European Journal of Health Economics

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Open Access 01-02-2012 | Original Paper

Spillover effects of supplementary on basic health insurance: evidence from the Netherlands

Authors: Anne-Fleur Roos, Frederik T. Schut

Published in: The European Journal of Health Economics | Issue 1/2012

Abstract

Like many other countries, the Netherlands has a health insurance system that combines mandatory basic insurance with voluntary supplementary insurance. Both types of insurance are founded on different principles. Since basic and supplementary insurance are sold by the same health insurers, both markets may interact. This paper examines to what extent basic and supplementary insurance are linked to each other and whether these links generate spillover effects of supplementary on basic insurance. Our analysis is based on an investigation into supplementary health insurance contracts, underwriting procedures and annual surveys among 1,700–2,100 respondents over the period 2006–2009. We find that health insurers increasingly use a variety of strategies to enforce a joint purchase of basic and supplementary health insurance. Despite incentives for health insurers to use supplementary insurance as a tool for risk selection in basic insurance, we find limited evidence of supplementary insurance being used this way. Only a minority of health insurers uses health questionnaires when people apply for supplementary coverage. Nevertheless, we find that an increasing proportion of high-risk individuals believe that insurers would not be willing to offer them another supplementary insurance contract. We discuss several strategies to prevent or to counteract the observed negative spillover effects of supplementary insurance.

This paper restricts the concept of solidarity to the so-called ‘risk-solidarity’, i.e. cross-subsidies from low- to high-risk individuals. Cross-subsidies between high- and low-incomes, i.e. ‘income-solidarity’, are not discussed here.

Long-term care services are covered by a separate mandatory social insurance scheme (abbreviated as AWBZ).

Although the European Commission (EC) has suggested that private health insurance schemes could be in line with article 54, the EC has also made clear that interventions are only justified if the Court considers the measures objectively necessary and proportionate to the general good [19]. The necessity and/or proportionality of Dutch governmental interventions is disputed (e.g. [37]). It goes beyond the scope of this paper, however, to deal with this issue extensively.

Imperfect risk equalization implies that some risk groups generate predictable losses while others generate predicable gains. However, since the distribution of individual health care expenditures is highly skewed the individual predictable losses are relatively high and concentrated in a relatively small group of high-risk individuals.

For instance, Dormont et al. [5] discuss the case of a Swiss health insurer that offers a 3 years’ supplementary insurance contract with discounts on sun glasses, ski helmets and hospitalizations to people without any health care consumption during the preceding year.

An actuarial fair price is the individual premium required to break even, given the individual’s expected cost.

In practice, health insurers typically employ both strategies to match premiums and risks, since these strategies are no perfect substitutes. Complete risk rating is often technically infeasible, too costly and unattractive because of the damaging effect of such behaviour on an insurer’s reputation [18]. Large premium variation is therefore not often seen in practice [11].

In theory, as argued by Herring and Pauly [12], no cross-subsidization have to take place if premiums of GR contracts are sufficiently “front loaded” in the current contract period in order to cover the risk of becoming a high-risk in later contract periods. Supplementary insurance premiums in the Netherlands, however, strongly diverge from the incentive-compatible front-loaded premium schedule as estimated by Herring and Pauly. Rather than charging front-loaded premiums, Dutch health insurers typically adjust the uniform (community-rated) premium of a supplementary policy to the changing risk profile of the remaining pool of policyholders.

GR contracts would only offer such protection if premiums would be sufficiently front-loaded, which is not the case in the Netherlands.

One health insurer reported that these changes were induced by the overly extensive use of benefits covered by its most generous policy.

Both the Dutch Healthcare Authority (NZa) [15] and members of Parliament [32] proposed to intervene in the supplementary insurance market to prohibit various tying arrangements. The government stipulated, however, that the proposed interventions were not feasible because of EU regulations (see Sect. “Health insurance in the Netherlands”).

We did not take into account specific questions about dental health, which are used by most health insurers when people apply for extensive dental coverage. Since these questions are commonly used and are not related to specific unprofitable risk groups in basic insurance, it is unlikely that they are used for risk selection in basic health insurance.

The overall switching rate dropped after an all-time-high rate of 18% in 2006 (as a result of the introduction of the new Health Insurance Act) to 4.4% in 2007, 3.6% in 2008 and 3.5% in 2009 [14, 25].

Our survey results have shown that switchers report a better health status than non-switchers. This is a common result in many studies both in the Netherlands and in other countries (see e.g. [5]).

In our surveys the proportion of elderly (over 65) among respondents of 18 years and older is about 25%, which is somewhat higher than in the general Dutch population (about 20%). The proportion of respondents reporting fair or poor health is about 17%, while the proportion of elderly respondents reporting fair or poor health is 24%. In sum, about 36% of the respondents is over 65 and/or has a self-assessed health status that is fair or poor. In 2009 about one-fifth of these respondents (i.e. 7/36) report that one of the reasons for not switching was that they believed that they would not be accepted by the insurer because of their age or health status.

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Title: Spillover effects of supplementary on basic health insurance: evidence from the Netherlands
Authors: Anne-Fleur Roos
Frederik T. Schut
Publication date: 01-02-2012
Publisher: Springer-Verlag
Published in: The European Journal of Health Economics / Issue 1/2012
Print ISSN: 1618-7598
Electronic ISSN: 1618-7601
DOI: https://doi.org/10.1007/s10198-010-0279-6

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Spillover effects of supplementary on basic health insurance: evidence from the Netherlands

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