Switching sickness funds in Israel: adverse selection or risk selection? Some insights from the analysis of the relative costs of switchers.

This paper uses medical care costs of joiners in their first year and of leavers in their last year prior the move, relative to the age-sex groups' means, to examine the mechanisms behind the switching decisions. Since under the Israeli National Health Insurance Scheme no premiums are paid by the enrollees directly to the sickness funds, the paper focuses on the distinction between demand-side-adverse-selection type and supply-side-risk-selection type of reasons for switching. The latter is particularly important because of the incomplete Israeli age-based risk-adjustment scheme. The findings indicate that leavers are less costly than average, and thus their leaving cannot be attributed to dumping or restricted care. Joiners are more costly than average in younger ages and less costly than average in advanced age. A particular group of young joiners seems to consist of women looking for pre- and/or post-natal care. The current generous capitation rate for children provides future compensation for this first year loss.