Solidarity in competitive markets for supplementary health insurance: an empirical analysis

Many countries are considering the option of reducing the share of mandatory health insurance (MHI) and to increasingly rely on voluntary (supplementary) health insurance (VHI) schemes to cover health care expenditures. It is well-known that competitive markets for VHI tend to risk-rated premiums. After discussing the determinants of riskrating in competitive VHI markets, we provide empirical evidence of the potential reduction of (risk-) solidarity caused by the transfer of benefits from MHI to VHI coverage. For this purpose, we simulate several scenarios in which benefits covered by MHI are transferred to competitive markets for VHI. We use a dataset issued by the largest insurer in the Netherlands, in order to calculate the potential premium range for VHI resulting from this transfer. Our findings show that, by adding risk-factors, the minimum VHI premium decreases while the maximum increases. Moreover, we observe that risk-rating primarily affects the maximum premium. The reduction of solid arity is especially substantial for benefits such as medical devices and drugs. Finally we discuss some options to maintain a socially acceptable level of solidarity in VHI markets.