Risk equalization in The Netherlands: an empirical evaluation.

The Netherlands relies on risk equalization to compensate competing health insurers for predictable variation in individual medical expenses. Without accurate risk equalization insurers are confronted with incentives for risk selection. The goal of this study is to evaluate the improvement in predictive accuracy of the Dutch risk equalization model since its introduction in 1993. Based on individual-level claims data (n = 15.6 million), we estimate the risk equalization models that have been successively applied in The Netherlands since 1993. Using individual-level survey data (n = 8735), we examine the average under-/overcompensation by these models for several relevant subgroups in the population. We find that in the course of years, the risk equalization model has been substantially improved. Even the current model (2012), however, does not eliminate incentives for risk selection completely. To achieve the public objectives, further improvement of the Dutch risk equalization model is crucial.