Risk Selection under Public Health Insurance with Opt‐Out

Abstract

This paper studies risk selection between public and private health insurance when some individuals can purchase private insurance by opting out of otherwise mandatory public insurance. Using a theoretical model, I show that public insurance is adversely selected when insurers and insureds are symmetrically informed about health-related risks, and that selection can be of any type (advantageous or adverse) when insureds have private information about health risks. Drawing on data from the German Socio-Economic Panel, I find that: (1) public insurance is adversely selected under the German public health insurance with opt-out scheme, (2) individuals adversely select public insurance based on self-assessed health and advantageously select public insurance based on risk aversion, and (3) there is evidence of asymmetric information.

Adverse selection in the German Health Insurance System – the case of civil servants

“…Bünnings and Tauchmann [9] provide evidence, that especially young and healthy individuals disproportionately often choose the opt-out option and obtain PHI. Following Panthöfer [10], this selection can be attributed largely to the individual comparison of morbidity-adjusted premiums (PHI) and income-related contributions (SHI) as well as the degree of risk aversion. The selection process is also driven by dynamic information revelation about the risk type of the insured influencing the point in time when selection effects take place [11].…”

Long-Term Health Insurance: Theory Meets Evidence

“…Hence, the sick basically remain publicly insured with SHI (Nuscheler and Knaus, 2005;Hullegie and Klein, 2010;Polyakova, 2016;Panthöfer, 2016). 54 While the main purpose of our paper is to 54 When children of privately parents are also privately insured by their parents, under a family plan or a separately private plan, parents have to pay premiums for each child.…”

“…For historical reasons, GLTHI covers three main population subgroups: (a) the self-employed; (b) high-income earners with gross labor incomes above a politically defined federal threshold (in 2020, the threshold is e 62,550, or about $68,800 per annum); and (c) civil servants. These population subgroups have the option to leave the public SHI system and insure their health risks privately with a long-term contract (Nuscheler and Knaus, 2005;Hullegie and Klein, 2010;Polyakova, 2016;Panthöfer, 2016). This decision to enter the private market is essentially a lifetime decision.…”

The effect of a ban on gender‐based pricing on risk selection in the German health insurance market

“…The ban on gender-based pricing can affect risk segmentation between SHI and PHI by placing both systems on equal grounds regarding gender as a pricing factor. Risk segmentation between SHI and PHI is at the heart of an ongoing debate about fairness and financial sustainability in the German health insurance system (Panthöfer, 2016;Polyakova, 2016). One concern is that cherry-picking of better health risks by PHI leads to a worse risk-pool for SHI.…”

“…Risk segmentation between SHI and PHI is at the heart of an ongoing debate about fairness and financial sustainability in the German health insurance system (Panthöfer, 2016;Polyakova, 2016). Risk segmentation between SHI and PHI is at the heart of an ongoing debate about fairness and financial sustainability in the German health insurance system (Panthöfer, 2016;Polyakova, 2016).…”