German risk structure compensation: enhancing equity and effectiveness.

Prior to the 1992 German Health Care Structure Reform Law, Germany experienced inequitable and inefficient competition among its health insurers, known as "sickness funds." That situation was due to limitations on individuals' choice of insurer and the resulting risk segmentation. In 1994, the country implemented risk structure compensation to increase equity among sickness funds and enhance efficiency. This article describes the German risk structure compensation mechanism and its effects, and points out implications for the U.S. insurance market.