Msc HE Health Economic theory

Public and Private Health Insurance in Germany:

The Ignored Risk Selection Problem

Mohamed
Ghoneim
06/10/15

Mohamed Ghoneim
23.11.2015
Bundesarchiv, Bild 146-1980-091-21 / Unbekannt / CC-BY-SA

Agenda

German healthcare system Facts and figures.

GHCS Milestones .

Healthcare Structure.

Risk selection study design.

Results and conclusion.

Facts and figures

German Healthcare System

Health care
expenditur
e per
capita
$ 4,812 ppp
(11.3% of
GDP) in
2014.1(5 out
of 34 OECD)
280 billion

% Public vs
Out of
pocket
- 77%
PUBLIC 12,5%
OUT OF
POCKET
(2012)

Number of
doctors /
1000
3.9 in
2013 (5
2

out of 34
OECD)

Life
expectan
cy at
birth
81
(16 out
of 34
OECD)

%
Waiting
times
waiting >
4 weeks
for an
appointme
nt: 17%
(lowest out
of 11
OECD
nations)

3
WHO HIT Germany report 2014 , available at:
The Rand Health Insurance
www.euro.who.int/__data/assets/pdf_file/0008/255932/HiT-Germany.pdf?
Experiment Nadine-Annelie Hambsch

GHCS Milestones
solidarity

188
3

National system of
social and health
insurance

subsidiarit
y
corporatis
m

1992

Health Care Reform, Regional Physicians

Associations geographically restrict the
settlement of new doctors according to their
specialty

1996

Free choice of health insurers (sickness

fund)

2009

Basistarif Mandatory health insurance for

all citizens & permanent residents
5

GHCS Overview

(Sickness funds)

Statutory
(Public)

income <
54,000

89%
(#:150)

GHCS

Private

income >
54,000 ,
students , self
employed &
civil servants

11%
(#:45)

7
Obermann, Mller, Mller, Schmidt, Glazinski Understanding
the German Health
Care System , MIPH

Structure

8 in the German health care

Oduncu, Fuat S. "Priority-setting, rationing and cost-effectiveness
system."Medicine, Health Care and Philosophy16.3 (2013): 327-339.

GHCS Financing

Employ
er

Copayments

Employ
ee

150
Sickness
funds

Reallocation Pool
(Gesundheitsfonds

15.5%
incom
e

morbidity-based
risk-adjustment
scheme
Central

(DRG)

Health care
providers

Private

Capital

Lnder (state
ministries of
health)

N.B :funds have to make up any shortfall by

charging a supplementary premium

NHS report avaialble online at :www.civitas.org.uk/nhs/download/germany.pd

The ignored risk selection problem

Study: Public and Private Health Insurance in Germany: The

Ignored Risk Selection Problem
Author: M. Grunow, R. Nuscheler

Mohamed
Publlished: May 2012 , Health
Economics journal
Ghoneim
06/10/15
Study Question: Will there
be advantageous selection in favor
of private insurers?

10
Grunow, Martina, and Robert Nuscheler. "Public and private health insurance in Germany:
The ignored risk
selection problem."Health economics23.6 (2014): 670-687.

Public/Private Comparison

Mohamed
Ghoneim
06/10/15

11

GHCS Regulations

Private premiums are risk rated , using a health questionnaire.

(only once with no reassessment)
sickness funds were free to set their contribution rate (but zeroprofit requirement)
Benefits of private health insurance must be at least as
comprehensive as public benefits.

12

Switching

Age 55 years No switch from private to

public health .

A switch was allowed if the insured was enrolled

in a public plan for at least 24 consecutive
months within the previous five years. (0.4 %
uninsured)

If income falls suddenly below threshold public

enrolment is obligatory.

If a privately insured individual gets laid-off,

regulation may dictate enrolment in the public
13

Negative
health
shock

High
income
low risk
individuals

14

Theory construction
High
incom
e low
risk

Private

Health

Research
Questions

crisis

Switch to
Public

Adverse
selection
from Private
to public in
health crisis
???

Private
will select
healthy
individual
s ???
15

Study method

- Data : 2000 to 2007 waves of the German SocioEconomic Panel Study (SOEP)
- SOEP study Population : 11,000 private
households (more than 20,000 individuals )
Study sample : 26 - 53 years. Why?

Analysis sample: 40,628 observations

17

18

Adverse
selection
from
Private to
public in
health
crisis ???

Results

Negative effect of
health on the
probability to switch
Clear cut, statistically
significant, sizable effect.
Adverse selection from
public to private in health
crisis.
Private try to push high risk
individuals to switch.

Private
will select
healthy
individual
s ???

Statistically
insignificant

Private insurers unable to select the

healthy from the public pool.
Why?
health questionnaire used by
private insurers is not all that
informative.
Applicants may overstate their
19
health .

Further research

In Chile, Dependent workers must

purchase health insurance either
plans are less likely to respond
and follow-up with applicants
from higher-cost regions, such as
West Germany.

from one public or several private

insurance providers.
The results show self-selection
against insurance companies for
independent
workers, and against public insurance
for dependent workers.

1-Sapelli, Claudio, and Bernardita Vial. "Self-selection and moral hazard in Chilean health
insurance."Journal of health
20
economics22.3 (2003): 459-.

Conclusion

Clear evidence for risk selection from private to Public insurance.

Can be metigated by : Open enrolment, regulation of benefits &
risk adjustment.
Due to public transfer risk adjustment mechanism, the risk is
compensated by all other public insurers.

Recommendatio
ns should compensate the public system.
The former private insurer

This transfer should be risk adjusted. This can eliminate private

insurers incentives to dump individuals that were subject to a
health shock.
More research should be done to confirm it more and distinguish
effect of supply and demand.
21

22

References
1.

Grunow, Martina, and Robert Nuscheler. "Public and private health insurance in Germany: The ignored
risk selection problem." Health economics 23.6 (2014): 670-687.

2.

www.civitas.org.uk/nhs/download/germany.pdf

3.

www.euro.who.int/__data/assets/pdf_file/0008/255932/HiT-Germany.pdf?ua=1#page=70&zoom=91.81,289,149

4.

Eggleston, Karen. "Risk selection and optimal health insurance-provider payment systems." Journal of
risk and insurance (2000): 173-196.

5.

Van de Ven, Wynand PMM, et al. "Risk adjustment and risk selection on the sickness fund insurance
market in five European countries." Health policy 65.1 (2003): 75-98.

6.

Sapelli, Claudio, and Bernardita Vial. "Self-selection and moral hazard in Chilean health
insurance." Journal of health economics 22.3 (2003): 459-476.

7.

Gre, Stefan. "Regulated Competition in Social Health Insurance: A Three Country

Comparison."International Social Security Review 59.3 (2006): 27-47.

8.

Bauhoff, Sebastian. "Do health plans risk-select? An audit study on Germany's Social Health
Insurance."Journal of Public Economics 96.9 (2012)
23

Risk adjustment scheme

redistributed according to morbidity-based criteria.

Via the risk adjustment
mechanism the receiving public insurer is compensated by all other public insurers. The
17 It may also be that some individuals (at least partially) lose insurance cover when they got
caught
cheating on the health questionnaire.
17
private insurer should then, in turn, compensate the public system. Obviously, such
a compensation must be risk adjusted in order to guarantee just competition between
insurance systems.

24

Further research

We conclude that in the case of imperfect risk adjustmentas is

the case in all five countries in the year 2001the sickness funds
have financial incentives for risk selection, which may threaten
solidarity, efficiency, quality of care and consumer satisfaction.
We strongly recommend therefore that policy makers in the five
countries give top priority to the improvement of the system of risk
adjustment. That would enhance solidarity, cost-control, efficiency
and client satisfaction in a system of competing, risk-bearing
sickness funds.
Van de Ven, Wynand PMM, et al. "Risk adjustment and risk selection on the sickness fund insurance
market in five European
25
countries."Health policy65.1 (2003): 75-98.

Take home message

Private health insurers can use the reimbursement channel strategically to

dump unprofitable customers into the public system. (More legalisations for patient protection?)
More research need to be done to confirm risk selction.

Risk adjustment for transfer.

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Mizo no Kokoro

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