Choice of public or private health insurance: learning from the experience of Germany and the Netherlands

Abstract

Several European countries have considered introducing choice of public or private health insurance - usually by allowing people to ‘opt out’ of the statutory scheme - under the assumption that enhancing consumer choice and stimulating competition between insurers will be beneficial. This article examines the impact of opting out on equity and efficiency in European health systems. Focusing on Germany and the Netherlands - the only European countries where this type of choice has been available to significant population groups for a prolonged period (from 1970 to the present day in Germany, and from 1941 to 1986 in the Netherlands) - the analysis suggests that current policy debates may overstate the potential benefits of opting out. Due to market failures in health insurance and differences in the regulatory frameworks governing public and private insurers, choice of public or private coverage creates strong incentives for private insurers to select risks and leads to risk segmentation, thereby breaching equity in funding health care, heightening the financial risk borne by public insurers and lowering incentives for private insurers to operate efficiently. Measures can be taken to correct these negative effects, but some forms of regulation may be politically and technically difficult to implement.