Risk Equalization in an Individual Health Insurance Market
The Only Escape from the Tradeoff Between Affordability, Efficiency And Selection: The Netherlands as a Case Study
By Wynand PMM van de Ven and Frederick T Schut
Summary: This paper shows that consumer choice of a health insurer provides the insurers with incentives for efficiency, but also with incentives for risk rating. This raises the question: How can America make individual health insurance affordable for the high risks in a competitive insurance market? The authors show that a system of subsidies is a straightforward way to do so; in general a system of risk-adjusted premium subsidies is the preferred form of subsidy. Although there are several ways to organize the subsidy payment flows, all countries applying risk-adjusted premium subsidies have chosen the form of risk equalization among insurers.
Key Concepts: health care administrative structure, international health care coverage models, managing health care inflation