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Risk equalisation in voluntary health insurance markets: A three country comparison

  • Armstrong, John
  • Paolucci, Francesco
  • McLeod, Heather
  • van de Ven, Wynand P.M.M.

The paper summarises the conclusions for health policy from the experience of three countries who have introduced risk equalisation subsidies, in their voluntary health insurance (VHI) markets. The countries chosen are Australia, Ireland and South Africa. All of these countries have developed VHI markets and have progressed towards introducing risk equalisation. The objective of such subsidies is primarily to make VHI affordable while encouraging efficiency in health care production. The paper presents a conceptual framework to understand and compare risk equalisation subsidies in VHI markets. The paper outlines how such subsidies are organised in each of the countries and identifies problems that arise in their implementation. We conclude that the objectives of risk equalisation, in VHI markets are no different to those in countries with mandatory insurance systems. We find that the introduction of risk equalisation subsidies is complex and that countries seeking to introduce risk equalisation in VHI markets must carefully consider how such subsidies advance their overall health policy goals. Furthermore, we conclude that such subsidies must be structured correctly as otherwise incentives exist for risk selection which may threaten affordability and efficiency. Our overall conclusion is that also in voluntary health insurance markets risk equalisation has a role in meeting the related public policy objectives of risk solidarity and affordability, and without it these objectives are severely undermined.

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File URL: http://www.sciencedirect.com/science/article/pii/S0168-8510(10)00167-3
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Article provided by Elsevier in its journal Health Policy.

Volume (Year): 98 (2010)
Issue (Month): 1 (November)
Pages: 39-49

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Handle: RePEc:eee:hepoli:v:98:y:2010:i:1:p:39-49
Contact details of provider: Web page: http://www.elsevier.com/locate/healthpol

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  1. van de Ven, Wynand P. M. M. & Beck, Konstantin & Buchner, Florian & Chernichovsky, Dov & Gardiol, Lucien & Holly, Alberto & Lamers, Leida M. & Schokkaert, Erik & Shmueli, Amir & Spycher, Stephan & Van, 2003. "Risk adjustment and risk selection on the sickness fund insurance market in five European countries," Health Policy, Elsevier, vol. 65(1), pages 75-98, July.
  2. Erik Schokkaert & Carine Van De Voorde, 2007. "Direct versus indirect standaardization in risk adjustment," Working Papers Department of Economics ces0733, KU Leuven, Faculty of Economics and Business, Department of Economics.
  3. Armstrong, John, 2010. "Risk equalisation and voluntary health insurance markets: The case of Ireland," Health Policy, Elsevier, vol. 98(1), pages 15-26, November.
  4. van de Ven, Wynand P.M.M. & Beck, Konstantin & Van de Voorde, Carine & Wasem, Jurgen & Zmora, Irit, 2007. "Risk adjustment and risk selection in Europe: 6 years later," Health Policy, Elsevier, vol. 83(2-3), pages 162-179, October.
  5. Michael Rothschild & Joseph Stiglitz, 1976. "Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information," The Quarterly Journal of Economics, Oxford University Press, vol. 90(4), pages 629-649.
  6. Van de ven, Wynand P.M.M. & Ellis, Randall P., 2000. "Risk adjustment in competitive health plan markets," Handbook of Health Economics, in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 14, pages 755-845 Elsevier.
  7. van Kleef, R.C. & Beck, K. & van de Ven, W.P.M.M. & van Vliet, R.C.J.A., 2008. "Risk equalization and voluntary deductibles: A complex interaction," Journal of Health Economics, Elsevier, vol. 27(2), pages 427-443, March.
  8. Connelly, Luke B. & Paolucci, Francesco & Butler, James R.G. & Collins, Paul, 2010. "Risk equalisation and voluntary health insurance markets: The case of Australia," Health Policy, Elsevier, vol. 98(1), pages 3-14, November.
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