Risk Adjustment in the German Health Insurance System – Does the Risk Compensation System Leave Any Incentives for Risk Selection?*

Germany’s Statutory Health Insurance (SHI) more or less dates back to the late 19 century when Chancellor Bismarck implemented a forerunner of the present system to combat social unrest. Without any doubt, this was a great achievement for the social welfare state in Germany, of which the SHI is one pillar – and the SHI has proved to be remarkably stable ever since, both against reform efforts and social change. In the beginning, the SHI system was not designed to foster competition. Rather, sickness funds, as health insurance corporations are called under the SHI, were forced to contract and act uniformly to ensure equity and to maximize market power. This was necessary as e.g. in the middle of the 20 century there were still more than 1,800 sickness funds – many of them operating only regionally. Also, the cost-containment policies which remained in place until the mid-1970s did not encourage competition. Not until the early 1990s did the political will change and the implementation of competitive elements into the SHI was seen as a way to raise efficiency potentials. This was the result of a general shift in the social climate favoring deregulation, questioning the effectiveness of top-down cost containment regulations and a raising societal debate over unequal options in choosing and switching sickness funds. As a consequence, the Health Care Structure Act was passed in December 1992, and almost all mandatorily insured individuals, including blueand white collar workers, were given the same right to choose a sickness fund in order to promote competition among sickness funds. From then on, sickness funds could be switched on a yearly basis with three months’ notice starting in 1997. To provide all sickness funds with a level basis for competition, a risk compensation system (RCS) was implemented two years before free choice of sickness funds was granted. Thus, the implementation of open enrollment in Germany was the aggregate 63 Risk Adjustment in the German health insurance system... Journal of Health Policy, Insurance and Menagement RISK ADJUSTMENT IN THE GERMAN HEALTH INSURANCE SYSTEM – DOES THE RISK COMPENSATION SYSTEM LEAVE ANY INCENTIVES FOR RISK SELECTION?* Anna Drabik, Markus Lüngen, Stephanie Stock, University Hospital of Cologne (Germany) * The article is based on: Lüngen M, Drabik A, Büscher G, Passon A, Siegel M, Stock S. Analyse von Selektionsanreizen für Krankenkassen nach Einführung des morbiditätsorientierten Risikostrukt-urausgleichs: Eine empirische Analyse. Gesundheitswesen 72 (11), 2010: 790-6. 1 Bärninghausen T, Sauerborn R. One hundred and eighteen years of the German health insurance system: are there any lessons for middleand low-income countries? Social Science and medicine 54 (10), 2002: 1559-87. 2 http://www.vdek.com/presse/daten/basisdaten-2007 /basis_2007_kap_a/seite_20_2007.pdf 3 Dixon A, Pfaff M, Hermess J. Solidarity and competition in social health insurance countries. In: Saltman R, Busse R, Figueeras J (eds). Social health insurance in western Europe. Buckingham: Open University Press 2004: 1-313. 4 Wendt C, Thompson T. Social austerity versus structural reform in European health systems: a four-country comparison of health reforms. International Journal of Health Services 34 (3), 2004: 415-33. 5 Wörz M, Busse R. Analysing the impact of health-care system change in the EU member states – Germany. Health Economics; 14 (Suppl.1), 2005: 133-49. 6 Graf von der Schulenburg J. Germany: solidarity at a price. Journal of Health Politics, Policy and Law 17 (4), 1992: 715-38. 7 Wahner-Roedler Dl, Knutz P, Jucems Rh. The German health-care system. Mayo Clinic Proceedings 72 (11), 1997: 1061-8. 8 Busse R, Howarth C. Cost containment in Germany: Twenty Years’ Experience. In: Mossialos E, Le Grand J (eds.) Health Care and Cost Containment in the European Union. Ashgate: Aldershot 1999: 303-9. 9 Wysong J A, Abel T. Risk equaliziation, competition and choice: a preliminary assessment of the 1993 German health reforms. Sozial und Praeventivmedizin 41(4), 1996: 212-23. 10 Altenstetter C. Insights from health care in Germany. American Journal of Public Health 93 (1), 2003: 38-44. 11 Busse R. Risk structure compensation in Germany’s statutory health insurance. European Journal of Public health, 11 (2), 2001: 174-7. result of the concern to provide equity of choice for all mandatorily insured individuals and the hope to improve efficiency within the system by strengthening competition. With time, the discussion concerning the RCS evolved to transforming the RCS, and to linking the risk compensation system to incentives for sickness funds to manage care and to implement a fully morbidity adjusted RCS while providing sickness funds with increasing leeway to compete with each other. Therefore, further refinement of the RCS has been on the political agenda ever since its implementation in 1994, leading to various expert reports and evaluations of the functioning of the RCS and its role in leaving incentives for risk selection. In this article, we focus on the latest health care reform refining the RCS and present an empirical analysis of its effects on risk selection for sickness funds.