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Switching insurer in the Irish voluntary health insurance market: determinants, incentives, and risk equalization

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Abstract

Background

The determinants of consumer mobility in voluntary health insurance markets providing duplicate cover are not well understood. Consumer mobility can have important implications for competition. Consumers should be price-responsive and be willing to switch insurer in search of the best-value products. Moreover, although theory suggests low-risk consumers are more likely to switch insurer, this process should not be driven by insurers looking to attract low risks.

Methods

This study utilizes data on 320,830 VHI healthcare policies due for renewal between August 2013 and June 2014. At the time of renewal, policyholders were categorized as either ‘switchers’ or ‘stayers’, and policy information was collected for the prior 12 months. Differences between these groups were assessed by means of logistic regression. The ability of Ireland’s risk equalization scheme to account for the relative attractiveness of switchers was also examined.

Results

Policyholders were price sensitive (OR 1.052, p < 0.01), however, price-sensitivity declined with age. Age (OR 0.971; p < 0.01) and hospital utilization (OR 0.977; p < 0.01) were both negatively associated with switching. In line with these findings, switchers were less costly than stayers for the 12 months prior to the switch/renew decision for single person (difference in average cost = €540.64) and multiple-person policies (difference in average cost = €450.74). Some cost differences remain for single-person policies following risk equalization (difference in average cost = €88.12).

Conclusions

Consumers appear price-responsive, which is important for competition provided it is based on correct incentives. Risk equalization payments largely eliminated the profitable status of switchers, although further refinements may be required.

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Notes

  1. This may not always be the case. For example, specific health insurance cover can be strongly linked to employment or certain eligibility criteria (e.g., Medicare or Medicaid in the United States).

  2. Currently there are three other insurers competing in the market in conjunction with the incumbent VHI.

  3. A contract is specified as providing for non-advanced cover if not more than 66 % of the full cost for hospital charges in a private hospital or prescribed minimum benefits, if lower, is always provided. Advanced contracts are contracts that are not non-advanced [39].

  4. In 2013, VHI had 54 % share of the market and paid 67 % of total market claims [40].

  5. HIA data suggest that roughly three in ten policyholders have access to work group schemes [28].

  6. As this is a voluntary market, the other option faced by consumers is to drop coverage entirely. Those who did so were excluded from the analysis.

  7. Average market premiums were calculated based on quarterly data provided by the HIA.

  8. Pseudo R 2 statistics for all models are quite low, however this tends to be the norm in logistic regression analysis [41].

  9. However, it is unclear whether the cost of investing in risk selection strategies for these individuals would outweigh the benefit.

  10. As discussed, this rate relates to the policy level, not the individual level.

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Acknowledgments

The authors would like to thank VHI Healthcare for access to their policyholder database. This research was funded by the Health Research Board PHD/2007/16.

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Authors and Affiliations

  1. Centre of Health Policy and Management, Trinity College Dublin (TCD), Dublin 2, Ireland

    Conor Keegan & Steve Thomas

  2. Health Information and Quality Authority (HIQA), Dublin 7, Ireland

    Conor Teljeur

  3. School of Economics, University College Cork (UCC), Cork, Ireland

    Brian Turner

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  1. Conor Keegan
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  2. Conor Teljeur
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Correspondence to Conor Keegan.

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Keegan, C., Teljeur, C., Turner, B. et al. Switching insurer in the Irish voluntary health insurance market: determinants, incentives, and risk equalization. Eur J Health Econ 17, 823–831 (2016). https://doi.org/10.1007/s10198-015-0724-7

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  • DOI: https://doi.org/10.1007/s10198-015-0724-7

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