Risk selection in a regulated health insurance market: a review of the concept, possibilities and effects

The Dutch basic health insurance is based on the principles of regulated competition. This implies that insurers and providers compete on price and quality while the regulator sets certain rules to achieve public objectives such as solidarity. Two regulatory aspects of this scheme are that insurers are not allowed to risk rate their premiums and are compensated for predictable variation in individual medical expenses (i.e., risk equalization). Research, however, indicates that the current risk equalization is imperfect, which confronts insurers and consumers with incentives for risk selection. The goal of this paper is to review the concept, possibilities and potential effects of risk selection in the Dutch basic health insurance. We conclude that the possibilities for risk selection are numerous and a potential threat to solidarity, efficiency and quality of care. Regulators should be aware that measurement of risk selection is a methodological and data-demanding challenge.