This article considers the potential for insurer competition to improve health system performance by strengthening purchasing. Economic theory suggests that insurer competition will enhance efficiency if: (1) people have free choice of insurer, (2) competition is based on price and quality rather than risk selection and (3) insurers have tools to influence health care costs and quality. The article assesses the extent to which these assumptions hold in Belgium, Germany, the Netherlands and Switzerland. It finds that health insurance market reforms in these countries have had mixed results in fulfilling these assumptions. In spite of significant investment in risk equalisation, incentives for risk selection remain. Consumer mobility is lower among older and chronically ill people, possibly due to close interaction between statutory and voluntary coverage. Although insurers in some countries increasingly have tools to enhance value, they may not always use them. The analysis suggests that the instrumental value of insurer competition rests on multiple assumptions that can only be upheld through frequently complex interventions often requiring elusive data. Making it work therefore requires action on several fronts, particularly to ensure incentives are aligned across the health system, and awareness of the political nature of some barriers to success.

State-of-the-art risk equalization models undercompensate some risk groups and overcompensate others, leaving systematic incentives for risk selection. A natural approach to reducing the under-or overcompensation for a particular group is enriching the risk equalization model with risk adjustor variables that indicate membership in that group. For some groups, however, appropriate risk adjustor variables may not (yet) be available. For these situations, this paper proposes an alternative approach to reducing under-or overcompensation: constraining the estimated coefficients of the risk equalization model such that the under-or overcompensation for a group of interest equals a fixed amount. We show that, compared to ordinary least-squares, constrained regressions can reduce under/ overcompensation for some groups but increase under/ overcompensation for others. In order to quantify this trade-off two fundamental questions need to be answered: ''Which groups are relevant in terms of risk selection actions?'' and ''What is the relative importance of underand overcompensation for these groups?'' By making assumptions on these aspects we empirically evaluate a particular set of constraints using individual-level data from the Netherlands (N = 16.5 million). We find that the benefits of introducing constraints in terms of reduced under/overcompensations for some groups can be worth the costs in terms of increased under/overcompensations for others. Constrained regressions add a tool for developing risk equalization models that can improve the overall economic performance of health plan payment schemes.

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Health care reform in the Netherlands: the fairest of all? A recent beauty contest among seven countries ranked the Dutch health care system first, above Australia, Canada, Germany, New Zealand, the UK and the USA. 1 When looking into the magic mirror on the wall, the Dutch system came out as the fairest of all, based on equity (first), access (first), quality (second), efficiency (third), and long, healthy and productive lives (fourth). As we know from the fairy tale, the wonderful mirror could speak nothing but the truth.

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