Opting out of Statutory Health Insurance in Germany and the ... - SFI

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Opting out of statutory health insurance: the case of Germany
and the Netherlands
Sarah Thomson* and Elias Mossialos**
* Research Officer, European Observatory on Health Care Systems and Research Officer in
Health Policy, LSE Health and Social Care (corresponding author)
** Reader in Health Policy, Department of Social Policy, LSE and Co-Director of LSE Health
and Social Care
Acknowledgements
The authors are grateful to Annemarie Ter Linden and Marieke Datema for their assistance
with documents in Dutch and German.
Address for correspondence:
Sarah Thomson
J301, LSE Health and Social Care, LSE, Houghton Street, London WC2 2AE
Email: s.thomson@lse.ac.uk
Tel: +44-20-7955-6474 / Fax: +44-20-7955-6803

Opting out of statutory health insurance: the case of Germany
and the Netherlands
Introduction
People living in the European Union (EU) rarely purchase private or voluntary health
insurance (VHI) as a substitute for health insurance provided by the state. This is because
statutory health insurance usually covers the whole population. Exceptions to this trend are
only found in Germany and the Netherlands, where levels of statutory health insurance
coverage are as low as 92.2 and 75.6 per cent respectively (Organisation for Economic Cooperation
and Development 2002).
Unlike other EU member states, governments in Germany and the Netherlands exclude a
significant proportion of the population from – or allow specific groups of people to opt out of –
the statutory health insurance scheme. Those who are excluded from statutory coverage can
purchase ‘substitutive’ VHI from private health insurers if they require protection from the
financial consequences of ill health. Those who are permitted to opt out can choose between
statutory and substitutive VHI coverage; opting for the latter exempts them from making
financial contributions to the statutory health insurance scheme i .
It is often argued that governments in other European countries should adopt the German or
Dutch model and exclude people from or allow them to opt out of some or all aspects of the
statutory health insurance scheme (Blackwell and Kruger 2002; Howard 2003). At the time of
writing, for example, the Italian, Slovakian and Russian governments are seriously
considering the introduction of an opt out policy.
Two assumptions underlie arguments in favour of exclusion and opt out policies. First, that
public resources for health care are limited and overstretched. If more people, particularly
those with higher incomes, are given the opportunity or compelled to take financial
responsibility for their own health protection, public expenditure on health care will fall, relative
to private expenditure, and the government will be able to devote a larger share of its
resources to providing health care for poorer people. Second, that increased choice for
consumers and the threat of voluntary exit from the statutory health insurance scheme will
stimulate competition between statutory and private health insurers, leading to efficiency
gains and improved quality in the health system as a whole.
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In practice, however, exclusion and opt out policies are not as straightforward as they at first
appear to be. They may also conflict with health system objectives. Due to differences in the
way in which statutory and private health insurers operate, the possibility of voluntary exit
from the statutory health insurance scheme is likely to threaten its financial stability: private
health insurers are able to attract younger and healthier people, leaving the state to cover an
adverse selection of older people and people in poor health. As a result of the correlation
between health status, age and income, a similar situation may arise when higher income
people are excluded from statutory coverage. In either case, the burden of raising revenue to
fund the statutory health insurance scheme will fall disproportionately on people with lower
incomes and lower levels of health, unless this revenue is subsidised through taxation or
mandatory contributions from those covered by substitutive VHI. Exclusion and opt out
policies may therefore undermine levels of solidarity between those with high and low
incomes and between those at high and low risk of ill health.
A further issue concerns the behaviour or conduct of insurers in a market for private health
insurance. Private health insurers generally operate in an environment that gives them
considerable freedom from government intervention, relative to statutory insurers. It could be
argued that this freedom is a necessary pre-requisite for the smooth functioning of a
competitive market. However, private health insurance is characterised by a number of
market failures, so unless it is subject to some degree of regulation, it is likely to be an
inefficient and inequitable means of funding health care (Barr 1992). Certain aspects of
market conduct may restrict choice for some consumers, particularly older people and people
in poor health, and prevent them from obtaining an affordable and adequate level of
substitutive VHI cover. This is of particular importance in the context of a market for
substitutive VHI, given its role in providing people with protection from the financial
consequences of ill health.
This paper reviews the operation of exclusion and opt out policies in the health sector in
Germany and the Netherlands, the only European countries in which such policies affect a
significant proportion (more than one per cent) of the population. In doing so it aims to
illustrate the potential impact of introducing exclusion and opt out policies in European health
systems and to highlight the consequences of exclusion and opt out policies for specific
health system objectives.
After outlining the relationship between statutory and substitutive VHI coverage in Germany
and the Netherlands, the paper reviews the consequences of allowing some people to choose
between statutory and substitutive VHI coverage and examines the implications of the way in
which private health insurers behave in a market for substitutive VHI. The paper’s central
argument is that exclusion and opt out policies do not live up to the expectation that they will
stimulate competition between statutory and voluntary health insurance, nor are they likely to
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enable governments to conserve public resources for the benefit of poorer people. Rather,
these policies conflict with the health system objectives of equity in funding health care, equity
of access to health care, efficiency and choice. They also create complexities that precipitate
high levels of government intervention in areas traditionally free from significant state control.
Statutory and voluntary health insurance in Germany and the
Netherlands
The origins of choice between statutory and substitutive VHI coverage in Germany date back
to the establishment of compulsory health insurance at the end of the nineteenth century. In
1881 the chancellor Bismarck attempted to enact legislation for a universal scheme of
compulsory health insurance, but due to heavy political opposition from Liberals and Social
Democrats, the provisions of the act that came into force in 1883 only established compulsory
enrolment for blue collar workers (Alber 1986; Rosenberg 1986; Katzenstein 1987). In 1970 a
new law made enrolment in the statutory health insurance scheme (Gesetzliche
Krankenversicherung; GKV) compulsory for white collar workers with earnings below an
income threshold (see Table 1). The law also allowed white collar workers with earnings
above the threshold to enrol in the GKV on a voluntary basis, thereby establishing choice
between statutory and substitutive VHI coverage for this group. Since a further legislative
change in 1989, any employee with earnings below the income threshold, with the exception
of public sector workers, is compulsorily enrolled in the GKV, while all those with earnings
above the threshold are permitted to enrol in the GKV if they so wish.
Employers now inform employees when their gross annual earnings rise above the income
threshold (€45,900 in 2003) and present them with three options: they can choose not to be
covered by any type of health insurance; they can purchase substitutive VHI; or they can rejoin
the GKV as voluntary enrolees (Busse 2000). Employees with earnings above the income
threshold and their dependants account for about 20 per cent of the population. Three
quarters of them choose to remain in the GKV as voluntary members. The remainder (about
4.5 per cent of the population) choose to purchase substitutive VHI from one of 50 private
health insurance companies belonging to the German Association of Private Health Insurers
(Verband der privaten Krankenversicherung; PKV) (PKV 2001). A very small group (0.2 per
cent of the population) has no health insurance coverage at all – mainly extremely wealthy
people (Busse 2002).
Prior to the second world war statutory health insurance in the Netherlands was entirely
voluntary. A compulsory scheme was established in 1941, at the instigation of the occupying
German forces and with disregard for the existing institutional structures (Blanpain et al. 1978;
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Cox 1993). The 1941 legislation was largely based on the German system, dividing statutory
health insurance into two sections: compulsory enrolment for employees and their
dependants and voluntary enrolment for self-employed people. The remainder were expected
to purchase private health insurance on a voluntary basis. Between 1941 and 1965 statutory
coverage was extended to new groups of non-employed people. The 1964 Sickness Funds
Act (Ziekenfondswet; ZFW) came into force in 1966, establishing the system that is in place
today. Since 1966, about three quarters of the Dutch population have been covered by the
ZFW (Organisation for Economic Co-operation and Development 2001).
Health insurance in the Netherlands currently operates on three levels (see Table 2) (Ministry
of Health Welfare and Sport 2002). The first level provides cover for long-term care. Based on
the 1967 Exceptional Medical Expenses Act (Algemene Wet Bijzondere Ziektekosten;
AWBZ), it is a universal scheme that is compulsory for all residents.
The second level provides compulsory cover for ‘normal necessary care’, under the ZFW, to
employees up to the age of 65 with gross annual earnings under the income threshold,
residents on benefits and (since 2000) self-employed people under the age of 65 with taxable
incomes below a lower threshold (see Table 1) (Ministry of Health Welfare and Sport 2002). It
also provides cover on a voluntary basis for members who reach the age of 65 and nonmembers
who are 65 and over and have a gross annual income below the lower threshold.
Individuals with gross annual earnings above the income threshold are no longer eligible for
ZFW coverage, but may purchase substitutive VHI instead. Some civil servants are also
excluded from the ZFW. They are covered by a separate statutory health insurance scheme
(Publiekrechtelijke ziektekostenverzekering; PZV), which closely resembles the ZFW.
Those that are not eligible for cover under the ZFW can purchase substitutive VHI or be
uninsured. In 2000 24.7 per cent of the Dutch population purchased substitutive VHI, down
from 27.2 per cent in 1990 (Vektis 2000). Only 1.6 per cent of the population did not have any
health insurance at all; most of the uninsured are homeless and a few conscientiously object
to insurance (Ministry of Health Welfare and Sport 2000). The Health Insurance Access Act
(Wet op de Toegang tot Ziektekostenverzekeringen; WTZ) passed in 1986 guarantees
substitutive VHI policy holders aged 65 and over access to a ‘standard’ policy that provides a
similar level of benefits to the ZFW for a fixed premium (see below).
Level three consists of complementary and supplementary VHI, which can be purchased by
anyone, on a voluntary basis, from sickness funds and private insurers.
Insert Table 1 here
Insert Table 2 here
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The health insurance options available to different population groups in Germany and the
Netherlands are presented in Table 3. In both countries the size of the market for substitutive
VHI is sensitive to developments in the statutory health insurance scheme. Changes in the
benefits provided by statutory coverage are usually followed by changes in the benefits
provided by substitutive VHI.
Insert Table 3 here
Issues arising from the choice between statutory and voluntary health
insurance
Allowing certain groups of people to opt out of the statutory health insurance scheme
presents private health insurers with strong incentives to persuade low risk individuals to
leave the statutory health insurance scheme and purchase substitutive VHI. This form of risk
selection is made possible by differences in the way in which statutory and private health
insurers operate, particularly with regard to enrolment, premium-setting and policy conditions.
Those who can obtain cheaper coverage from private health insurers – mainly younger
people with no pre-existing conditions and few or no dependants – will leave the statutory
health insurance scheme. This results in self-selection against the statutory health insurance
scheme, which closely resembles the effects of adverse selection in insurance markets.
Adverse selection arises when insurance plans offering generous benefits are selected by
individuals with a higher than average risk of ill health, causing these plans to increase
premiums, which in turn provokes individuals with a lower than average risk of ill health to
switch to cheaper plans (Cutler and Zeckhauser 2000). Ultimately, more generous plans
become financially unstable and are forced out of business. Researchers have shown how
adverse selection led to the swift collapse of indemnity insurance plans organised by
employers in the United States (Cutler and Zeckhauser 1997).
Where individuals can choose between statutory and VHI coverage, as in the Netherlands
prior to 1986 and in Germany, the statutory health insurance scheme is likely to end up
covering an adverse selection of the population – predominantly older people, poorer people,
people with pre-existing conditions or at higher risk of ill health and people with dependants.
In order to compensate for the loss of contributions from low risk – and possibly wealthier –
people who have opted out, the statutory health insurance scheme may have to increase
contributions from its remaining members. Consequently, the public burden of funding health
care falls disproportionately on people with low incomes and in poor health, undermining risk
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and income solidarity. The situation is compounded when the statutory health insurance
scheme acts as the insurer of last resort, with people who have previously opted out returning
to it when they can no longer afford substitutive VHI premiums.
Faced with self-selection against the statutory health insurance scheme, governments can
respond in several ways. First, they can prohibit voluntary exit from the statutory health
insurance scheme (see Table 3 above), either by replacing the dual system of statutory and
VHI coverage with a single system of compulsory health insurance or by changing the opt out
policy to an exclusion policy. Second, they can limit the voluntary exit of some low risk people
by raising the income threshold or reduce incentives to opt out by preventing some or all of
those who opt out from returning. Third, they can compel substitutive VHI policy holders to
subsidise those insured by the statutory health insurance scheme, either explicitly or covertly.
Governments in the Netherlands and in Germany adopted some of these measures when
they were confronted with self-selection against the statutory health insurance scheme during
the 1980s and 1990s (Wasem 1995).
The Health Insurance Act passed in the Netherlands in 1964 (the ZFW) established three
separate statutory health insurance schemes: a compulsory scheme for employees and their
dependants, a compulsory scheme for older people and a voluntary scheme for those not
eligible for cover under the compulsory schemes. Eligibility for each of the schemes was
subject to an income threshold (den Exter et al. 2002). Individuals who were not compulsorily
covered by the ZFW could choose between statutory and VHI coverage. Initially, most private
health insurers rated substitutive VHI premiums on a community basis, so all policy holders
insured by a particular company paid the same amount for the same level of cover. During the
1970s, however, some insurers began to offer discounted premiums for students, to charge
higher premiums for older policy holders, to reject applications outright and to exclude preexisting
conditions from cover (Gresz et al. 2002b). High risk individuals were deterred from
leaving the statutory health insurance scheme by high premiums and unfavourable policy
conditions, while low risk individuals found they were able to obtain cheaper coverage from
private insurers.
The ensuing exodus of younger and healthier people from the compulsory scheme for older
people and the voluntary statutory health insurance scheme created financial difficulties for
the ZFW, which faced increasing deficits. In 1986 the Dutch government took action to
prevent further escalation of these deficits. It abolished both schemes, transferring their
members to the compulsory scheme for employees and their dependants, which was at the
same time expanded to cover some people receiving state benefits (den Exter et al. 2002). In
effect the government put an end to the opt out policy of allowing certain individuals to choose
between statutory and VHI coverage, replacing it with the exclusion policy that remains in
place today.
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As a result of the government’s change of policy the newly-expanded ZFW found itself
covering a disproportionately high number of elderly people, relative to private insurers. The
government therefore introduced the Act on Joint Funding of Elderly Health Insurance Fund
Members (Wet Medefinanciering oververtegenwoordiging Oudere Ziekenfondsverzekerden;
MOOZ), establishing the MOOZ, which obliges all substitutive VHI policy holders to make an
annual flat-rate contribution to the ZFW. The government also established the WTZ (see
above and below).
Both the MOOZ and the WTZ are still in force today because the ZFW continues to cover a
disproportionately high number of older people (see Table 4). In fact, almost all those aged 65
and over who are excluded from the ZFW are covered by the WTZ, rather than substitutive
VHI. It is questionable whether the MOOZ has succeeded in restoring the breach of income
and risk solidarity caused by the opt out policy that was in place between 1964 and 1986.
Annual MOOZ contributions are small, only amounting to about 5 per cent of the average
substitutive VHI premium, and are unlikely to compensate for the low levels of income and
risk solidarity between substitutive VHI and the ZFW and among those who are excluded from
the ZFW (Hamilton 1996). Furthermore, as contributions to the ZFW are based on earnings
rather than all sources of income, substitutive VHI policy holders may in fact be subsidising
some ZFW members who are low earners but have large non-wage incomes (Westerhout
1999).
Insert Table 4 here
The existence of an opt out policy in Germany has led to similar issues for the statutory health
insurance scheme (the GKV), although for slightly different reasons. In the early 1990s the
GKV found itself in financial straits due to the fact that it was insuring a disproportionately high
number of people with large families, relative to substitutive VHI (Rupprecht et al. 2000).
Because the GKV automatically covers its members’ dependants at no extra cost, while
private health insurers require policy holders to purchase separate policies for dependants,
family size has always been a critical factor for employees choosing between statutory and
VHI coverage (Schneider et al. 1992). Clearly, the GKV is more attractive to employees with a
higher number of dependants. A comparison of the average annual substitutive VHI premium
(about DEM 3,500 in 1999) and the average annual maximum GKV contribution (DEM 10,688
overall; DEM 10,805 in the old Länder and DEM 10,570 in the new Länder) gives some
indication of how much a German employee without dependants might save by opting for
substitutive VHI (Mossialos and Thomson 2002). However, an individual’s actual annual
substitutive VHI premium is likely to be considerably higher than the average, as the average
also includes the premiums paid by civil servants and children, which are substantially lower
than the premiums paid by employees and self-employed people.
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At the same time the GKV came under further financial pressure caused by an influx of older
people who had opted for substitutive VHI when they were younger and faced lower
premiums, but could no longer afford to pay the premiums demanded by private health
insurers (Wasem 1995). One of the ways in which they were able to do this was by reducing
their working hours prior to retirement, which allowed their incomes to drop below the
threshold. Since the 1930s substitutive VHI in Germany has been underwritten in the same
way as life insurance in order to protect policy holders. Premiums are loaded to spread costs
over an individual’s lifetime. Each insurer pools premiums for policy holders in the same age
cohort, thereby building up reserve funds to finance the provision of benefits in old age.
Insurers are prohibited from terminating contracts, policy holders benefit from lifetime cover
and premiums should not, in theory, increase as policy holders age. However, an adjustment
clause allows insurers to raise premiums if there is any discrepancy between the costs used
to calculate premiums and the actual costs of providing benefits. During the 1990s private
health insurers used this clause to introduce sharp increases in premiums, particularly for
older policy holders. The need to increase premiums stemmed from miscalculation on the part
of insurers rather than unexpectedly high rates of inflation ii .
The combination of a high proportion of members with large families and the return of older
people who had not previously contributed to it stretched the GKV’s finances and precipitated
a series of reforms aimed at restricting voluntary exit from the GKV and limiting the
circumstances under which substitutive VHI policy holders could return to the GKV. In 1994
the government announced that the decision to opt for substitutive VHI would be irreversible
for those aged 65 and over (Busse 2000). That is, those who left the GKV would not be able
to return to it when they were older, even if their incomes fell below the threshold. The Social
Health Insurance Reform Act of 2000 tightened the rules further by reducing the age
threshold for returning to the GKV to 54 (Comité Européen des Assurances 2000). The 2000
Act also addressed the problem of inaccurate premium calculations and inadequate ageing
reserves by imposing a surcharge of up to 10 per cent of the gross premium on all new
substitutive VHI policies and a premium increase of two per cent a year for five years for
existing policy holders (Datamonitor 2000a). The interest arising from the surcharge is
credited to the policy holder and used to limit premium increases in older age
(Bundesaufsichtsamt für das Versicherungswesen 2001).
Prohibiting substitutive VHI policy holders aged 55 and over from returning to the GKV is one
way of ensuring that GKV contributions do not need to rise to meet the cost of treating
individuals who have not previously contributed to it. But in some respects the 1994 and 2000
reforms may encourage self-selection against the GKV because those who are risk averse or
who expect to have high levels of expenditure on health care in the future are now less likely
to opt for substitutive VHI. The PKV’s website points out that substitutive VHI is best value for
8

young and healthy people, single people and double-income couples (PKV 2002b). It also
advises potential policy holders to opt for substitutive VHI as early as possible.
Those purchasing substitutive VHI continue to be mainly young, single people or couples with
double incomes (Datamonitor 2000a; Datamonitor 2000b). Substitutive VHI policy holders are
also more likely to be adult males living in the old Länder (formerly West Germany). In 1999
men accounted for 52.7 per cent of those with substitutive VHI, while women only accounted
for 32 per cent and children up to and including 15 years old for 15.3 per cent (PKV 2000).
The low proportion of women among those with substitutive VHI may be attributed to the
lower rate of employment for women and the fact that women have lower earnings than men
(PKV 2001). Data from 1992 and 1993 show that only 4.4 per cent of those with substitutive
VHI – and 0.8 per cent of those with complementary and supplementary VHI – were from the
new Länder (PKV 1994). This discrepancy is still marked; in 2001 overall coverage was 11.8
per cent, with 13.5 per cent coverage in the old Länder compared to only 5.3 per cent
coverage in the new Länder (Bundesministerium für Gesundheit 2000; Gesamtverband der
Deutschen Versicherungswirtschaft 2001).
In 2002 the government announced its intention to raise the income threshold by a higher
than average amount with effect from January 2003 (2002) iii . This has encouraged a larger
than usual exodus from the GKV (Fromme and Schlingensiepen 2002). While it has not been
possible to obtain data about the characteristics of those who left the GKV between the time
of the announcement and January 2003, it is feasible to speculate that most of these
individuals are young and in good health.
Unlike in the Netherlands, there are no explicit attempts to transfer resources from
substitutive VHI policy holders to the statutory health insurance scheme in Germany.
However, substitutive VHI policy holders may subsidise the GKV in a less overt way.
Providers are allowed to charge most privately-insured patients 1.7 or 2.3 times the
reimbursement values – and sometimes even more – set in the fee schedule for private
medical services issued by the Ministry of Health (Busse 2000). Substitutive VHI policy
holders may therefore subsidise the GKV through the higher fees they pay to providers, which
prevents inflation of provider costs in the GKV. At the same time, however, providers have a
financial incentive to treat privately-insured patients before GKV members, although it is not
clear how much this happens in practice.
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Affordability, choice and consumer protection in the market for
substitutive VHI
One of the arguments in favour of allowing people to opt out of the statutory health insurance
scheme and purchase substitutive VHI is that it increases choice for consumers. Even where
people are excluded from statutory coverage, it is expected that the market for substitutive
VHI will provide them with a greater degree of choice, relative to those who are covered by
the statutory health insurance scheme. However, a closer analysis of the way in which private
insurers operate in Germany and the Netherlands suggests that while substitutive VHI has the
potential to offer policy holders a superior level of choice, in practice choices are constrained
by insufficient levels of information and weak protection for consumers. In the German case,
the wide range of options available to employees with earnings above the income threshold
creates complexities that can be difficult for consumers to unravel (Riemer-Hommel et al.
2003). Choices made at a certain point in time may, at a later stage, turn out to have been
sub-optimal.
The behaviour of private insurers may also prevent certain people from obtaining an
affordable and adequate level of cover, particularly those with pre-existing conditions, women,
families and older people. This is an issue that can arise in any type of VHI market, but it is
more likely to be a matter of concern to governments when vulnerable people do not have
recourse to alternative sources of coverage, for example from the state.
Insurers operating in a market for health insurance are less likely to be constrained in their
behaviour than their statutory counterparts. In general, they do not have to offer open
enrolment, their premiums are not required to be independent of ability to pay or risk of ill
health and they can set their own policy conditions. This is largely true of the market for
substitutive VHI in Germany and the Netherlands (see Table 5), although over time private
insurers in both countries have become subject to a considerable degree of government
intervention due to the nature and size of the risk they cover.
Insert Table 5 here
Private insurers in Germany and the Netherlands are free to reject applications, so some high
risk individuals may not have access to any form of substitutive VHI cover. Pre-existing
conditions can be excluded outright or may be covered if disclosed at the time of underwriting,
but at extra cost. As previously noted, substitutive VHI does not automatically extend free
coverage to dependants in either country, which makes family size a critical factor in
determining affordability, particularly in Germany. Dutch families with earnings above the
income who obtain substitutive VHI through their employers, on a group basis (see below),
10

may be in a more favourable position than those who purchase it individually, because some
group policies only charge premiums for the first two children (Eindhoven Technical University
2002).
Substitutive VHI premiums are usually based on the actuarial principle of risk and the level of
cover purchased. The price of premiums, and their affordability, therefore depends on the
policy holder’s health status and the type of benefits he or she requires. In Germany
substitutive VHI premiums are adjusted for age, sex and health status. This means that
women pay significantly higher premiums than men. The cost of a basic substitutive VHI
policy – that is, without supplementary benefits – is 50 per cent higher for women than for
men in the 20-30 age group, 42 per cent higher in the 30-40 age group and 30 per cent higher
in the 40-50 age group (PKV 2002a). These differences in price are intended to reflect the
fact that women are likely to live longer than men and may incur additional costs associated
with child birth. Most premiums for substitutive VHI in the Netherlands are adjusted for age,
so that a 25 year old and a 55 year old buying a policy for the first time will be charged
different rates.
Private insurers in both countries are required to fund benefits and rate premiums for
substitutive VHI in such a way as to ensure that they do not increase as policy holders age.
However, as outlined above, this has not prevented private health insurers from raising
premiums substantially. Between 1993 and 1999 gross written premiums for substitutive and
other types of VHI in Germany grew in real terms at a compound annual growth rate of 5.2
per cent (PKV 1999) iv . Per capita total expenditure on health care grew at the much slower
annual rate of 4.5 per cent (calculated in national currency units at current prices)
(Organisation for Economic Co-operation and Development 2000). Since 1994 the real
compound annual growth in premiums for substitutive VHI has been lower, at 2.9 per cent,
compared to a growth rate of 8.8 per cent for all other types of VHI (Datamonitor 2000b). This
may be due to the fact that many private health insurers now subsidise increases in
substitutive VHI premiums from their own reserves, in order to continue to attract new
business, rather than raising premiums and risking a repeat of the adverse publicity that
surrounded the market in the early 1990s, when they were criticised for charging
unreasonable premiums for older policy holders (Datamonitor 2000b). Some private health
insurers in Germany have been able to exploit a loop hole in the regulatory framework by
barring new policy holders from entering existing risk pools, which means that those already
in those risk pools incur higher premiums because they cannot benefit from the entry of lower
risk policy holders (Riemer-Hommel et al. 2003).
The sale of substitutive VHI policies to groups can also affect price and affordability. Private
health insurers favour group purchasing because it provides high volumes of business without
a correspondingly large market outlay (BMI Europe 2000) and because it means that they
11

cover a younger, healthier and more homogenous population (Gauthier et al. 1995). In the
Netherlands the sale of policies to groups – usually large companies – has risen substantially
in recent years and continues to be a rapidly growing sector of the substitutive VHI market
(Maarse and Paulus 1998). Group-purchased policies now account for over half of all
substitutive VHI sales (Vektis 2001). Group policy holders mainly benefit from minimal risk
rating – age only – and cheaper premiums, but they can also receive additional perks, such
as the absence of waiting periods, a higher proportion of benefits in kind, free coverage for
any additional child beyond the second and priority treatment for employees (ter Meulen and
van der Made 2000; Eindhoven Technical University 2002). If insurers are part of larger
conglomerates selling other types of insurance, as is often the case in the Netherlands, group
purchasing provides them with the opportunity to market their other, more profitable, products
such as life insurance (Schut 2002).
Group-purchased substitutive VHI is not common in Germany. This is partly due to the fact
that employers already contribute to the cost of individually-purchased substitutive VHI
policies and may therefore be reluctant to incur further expenses in setting up group
schemes, and partly due to the small numbers involved (Datamonitor 2000b). In 2000 only
five private insurers sold substitutive VHI policies to groups, mainly multinational corporations
and trades unions (Datamonitor 2000b). Currently, group-purchased policies do not differ
substantially in price or content from individually-purchased policies (Schnitzler 2003b).
In Germany there are few differences overall in the level of benefits provided by statutory and
VHI coverage because the GKV continues to provide a comprehensive range of benefits.
Some private insurers may offer a slightly wider range of benefits than the GKV, particularly
for services such as mammography, pharmaceutical prescriptions and expensive dental care,
but in other areas GKV benefits may be more generous than those provided by private health
insurers – for example, psychotherapy (Mossialos and Thomson 2002). However, a major
distinction between statutory and substitutive VHI coverage is that the employee opting for the
latter has to purchase more than one policy in order to obtain a comprehensive package of
benefits. Private health insurers offer outpatient and dental benefits separately from inpatient
benefits, so while policy holders usually enjoy the same benefits as those insured by the
GKV, their level of cover depends on the amount of policies they buy (Mossialos and
Thomson 2002). This may not be problematic where inpatient care is concerned, as inpatient
benefits are clearly defined and there is not much variation between inpatient policies, but
policies offering outpatient benefits do vary, particularly with regard to marginal benefits such
as psychotherapy, alternative treatment, rehabilitation and transport. Some outpatient policies
may therefore offer lower levels of coverage than would be provided by the GKV. While
employers contribute up to 50 per cent of employees’ substitutive VHI premiums – as in the
GKV – but this contribution is limited to the average maximum GKV contribution, so that the
employee bears the full cost of any additional benefits purchased (Bundesaufsichtsamt für
12

das Versicherungswesen 2001). Consumer associations in Germany have recently noted that
individuals find it increasingly difficult to distinguish between necessary and superfluous VHI
products (Datamonitor 2000b).
Substitutive VHI may present lower-income policy holders with financial barriers to accessing
health care by providing benefits in cash rather than in kind. Unlike GKV and ZFW members,
who receive benefits in kind, substitutive VHI policy holders generally have to pay providers
directly and are subsequently reimbursed by their insurer. In practice, many private insurers in
the Netherlands provide some benefits in kind, particularly to those with group-purchased
policies. Private insurers in both countries also offer policy holders a range of reimbursement
options and different levels of cost sharing in the form of deductibles. In Germany, for
example, an annual deductible of €460 for an outpatient policy lowers the premium to about
70 per cent of the full price (PKV 2001). However, while deductibles reduce the price of
premiums, they also reduce levels of coverage (ter Meulen and van der Made 2000).
Prior to reforms that took place in both countries during the 1990s, most people covered by
the statutory health insurance scheme were not able to choose their sickness fund (Busse
2000; den Exter et al. 2002). Substitutive VHI therefore offered its policy holders a clear
advantage by giving them choice of insurer. Since 1993 in the Netherlands and 1996 in
Germany, sickness funds have been subject to price competition on the basis of the variable
flat-rate fee (the Netherlands) v and the variable contribution rate (Germany). The latter can
vary substantially; in some regions employees are able to choose between funds with a
contribution rate of 11.2 per cent and funds with a contribution rate of 15 per cent (Gresz et al.
2002a). Estimates of the share of GKV members switching sickness fund each year range
from three to five per cent (Gresz et al. 2002a) and those who switch tend to be young and
healthy (Busse 2002). In the Netherlands the proportion of ZFW members switching is also
low (Schut 2002).
Substitutive VHI policy holders should be able to obtain cheaper coverage by switching to a
different private insurer. However, switching is a costly option for all but the youngest and
most recently insured substitutive VHI policy holders, partly due to the way in which premiums
are loaded to reflect age at entry and partly due to the non-transferability of ageing reserves
in Germany and the non-transferability of claims histories in both countries.
In Germany ageing reserves cannot be transferred from one insurer to another, and
premiums are based on age at entry, so there is a strong incentive for substitutive VHI policy
holders to stay where they are rather than moving to another insurer and paying a higher
premium. The government’s recent decision to impose a 10 per cent surcharge on all new
policies (see above) makes it even less attractive for policy holders to move to another
insurer. Switching insurers may not actually be an option for policy holders who suffer from
13

pre-existing conditions, as insurers are able to reject applications. For this reason the PKV
warns people not to leave their current insurer until they have been accepted by another (PKV
2002b). Even if switching is an option, cancellation and waiting periods may vary between
insurers, so policy holders could find themselves paying premiums to the old and new insurer
at the same time. With the exception of a small number of young policy holders, movement
between private insurers in Germany is marginal (Datamonitor 2000b). Private insurers have
recently come under pressure to make ageing reserves transferable (Riemer-Hommel et al.
2003), but there is concern about the feasibility of this proposal and some argue that it would
cause a substantial increase in the price of premiums (Schnitzler 2003a).
Switching from one private insurer to another also incurs additional costs for most substitutive
VHI policy holders in the Netherlands. Because claims histories are not transferable, policy
holders become ‘locked in’ to their existing policy. Switching is not a realistic option for older
policy holders or those in poor health as a new private health insurer would charge them
higher premiums. The rising prevalence of group-purchased substitutive VHI in the
Netherlands means that many employees cannot switch insurer unless they move to a
different employer. However, as employers are able to negotiate cheaper premiums and more
favourable policy conditions, this restriction of choice may not always be to the employee’s
disadvantage.
Competition for existing substitutive VHI policy holders is almost non-existent in Germany and
rare in the Netherlands (Westerhout 1999). Although there is strong competition for new
entrants to the market in both countries – that is, those who cross the income threshold for
the first time – this does not always benefit the consumer. For example, some private insurers
in Germany deliberately miscalculate entry premiums so that they are able to offer lower rates
than their competitors, and then increase premiums once policy holders are locked in and no
longer able to switch insurer without incurring substantial costs (Riemer-Hommel et al. 2003).
The Dutch market also shows signs of strong competition for group-purchased policies,
leading some private insurers to price policies below cost in order to increase sales, largely in
the hope of being able to market their other insurance products to substitutive VHI policy
holders (Schut 2002). Because employers are more active in purchasing than individuals,
there is greater movement between private insurers in this section of the market.
Substitutive VHI may offer urban policy holders a wider choice of providers in Germany,
where about three per cent of ambulatory doctors are not contracted by the GKV, particularly
if these doctors are concentrated in the major cities (Busse 2000). It is sometimes claimed
that substitutive VHI policy holders receive higher quality care than GKV members and
preferential access to treatment – because providers can charge higher prices for privatelyinsured
patients – but this claim has not been substantiated, and in the absence of waiting
lists, faster access to health care is unlikely to be an issue (Busse 2001).
14

Dutch substitutive VHI policy holders may also benefit from marginally greater choice of
provider. Those covered by the ZFW are limited to the use of providers contracted by their
sickness fund, although most sickness funds have contracts with most providers in their
region, so this rule does not restrict consumer choice in practice (den Exter et al. 2002).
However, substitutive VHI policy holders may have faster access to specialists than ZFW
members as private health insurers are less strict than sickness funds in enforcing the gatekeeping
system in place (Kulu-Glasgow et al. 1998). Furthermore, Dutch providers have a
strong incentive to treat substitutive VHI policy holders preferentially to ZFW members
because they are paid on a capitation basis for ZFW patients, but on a fee-for-service basis
for privately-insured patients (ter Meulen and van der Made 2000).
In both countries substitutive VHI appears to offer some policy holders advantages in terms of
choice and price, relative to statutory coverage. Young and healthy employees with no or few
dependants are likely to obtain cheaper coverage from private health insurers than from the
statutory health insurance scheme, particularly in the Netherlands, where group-purchased
policies are widely available. However, these advantages may be short-lived. As policy
holders age, premiums tend to increase and people become locked in, unable to switch to
cheaper policies without incurring substantial costs. The difficulty of switching is compounded
by insufficient access to information about alternative options.
Given that eligibility for substitutive VHI is determined by the level of an employee’s earnings,
and those purchasing substitutive VHI are therefore relatively high earners, it could be argued
that these issues amount to a matter of consumer protection rather than a problem of access
to health care. At the same time, policy responses to the issue of self-selection against the
statutory health insurance scheme have led to important changes in the relationship between
statutory and substitutive VHI coverage (see above), so that the latter is no longer the
preserve of high earning employees. The combination of these regulatory changes with
strong incentives for private insurers to select low risk individuals and restrict access for high
risk individuals has transformed what may originally have been an issue of consumer
protection into an issue of social protection. For this reason governments in both countries
have been obliged to intervene in the market for substitutive VHI to ensure that more
vulnerable groups are able to obtain an affordable and adequate level of coverage.
Approaches to protecting these groups of people range from mandatory risk pooling to
guaranteed levels of coverage through standardised benefits, guaranteed prices, enforced
solidarity payments and enforced provision of information.
Since the German government restricted substitutive VHI policy holders’ access to the GKV in
1994 and 2000 (see above), private insurers have been obliged to offer a ‘standard tariff’
policy to those aged 55 and over who have been privately insured for at least 10 years and
15

whose incomes have fallen below the threshold. This type of policy guarantees access to the
same level of benefits provided by the GKV at a price that cannot exceed the average
maximum GKV contribution, or 1.5 times the contribution for married couples (Comité
Européen des Assurances 1997; PKV 2001). However, the standard tariff policy fails to put
substitutive VHI policy holders with incomes below the threshold on an even footing with GKV
members as it does not cover dependants. Even with the 50 per cent reduction for spouses,
the standard tariff policy premium is higher than the average maximum GKV contribution.
Initially, few substitutive VHI policy holders switched to a standard tariff policy – only 1,161
people in 1998 and 1,407 in 1999 – perhaps due to lack of information about whether or not
they were eligible to switch (PKV 2000). The 2000 Reform Act addressed this issue by
requiring private health insurers to inform existing policy holders of the possibility of switching
to another tariff category when their premiums go up and to advise policy holders aged 60 or
over to switch to a standard tariff policy or to switch to another tariff category that provides the
same benefits for a lower premium (Bundesaufsichtsamt für das Versicherungswesen 2001).
The Act also stipulates that insurers must inform potential substitutive VHI policy holders of
the likelihood of premiums rising, the possibility of limiting the rise in premiums with old age
and the irreversibility of the decision to opt out of the GKV (Comité Européen des Assurances
2000; Bundesaufsichtsamt für das Versicherungswesen 2001). Consequently, in 2000 the
number of standard tariff policy holders more than doubled to 3,024. Finally, the Act prevents
providers from charging more than 1.7 times the negotiated fee for standard tariff policy
holders (Bundesaufsichtsamt für das Versicherungswesen 2001).
Although the 2000 Reform Act tried to address concerns about consumer protection, its
provisions only go so far as to oblige private insurers to provide information about switching
tariffs to policy holders aged 60 and over, so inadequate information is still an issue for
younger substitutive VHI policy holders, as demonstrated by the development of a market for
independent insurance brokers and websites providing comparative information on a nonprofit
basis (see, for example, www.stiftung-warentest.de) and the proliferation of price
comparisons published in newspapers and magazines. The PKV has also set up a website
reminding consumers to leave the GKV as soon as possible, not to leave one insurer until
they have been accepted by another insurer, that substitutive VHI does not cover ‘certain
things’ and that substitutive VHI premiums are difficult to ‘check up’ (see www.privatekrankenversicherung.net).
The PKV’s website even advises consumers that substitutive VHI
is best value for young and healthy single people and couples with double incomes.
After the voluntary ZFW scheme in the Netherlands was abolished it became clear that
several groups of people who were now forced to rely on substitutive VHI – particularly older
people and younger self-employed people with pre-existing conditions – were finding it
difficult to cover the cost of premiums. The Dutch government therefore introduced the Health
16

Insurance Access Act (Wet op de Toegang tot Ziektekostenverzekeringen; WTZ). This Act
guarantees substitutive VHI policy holders aged 65 and over access to a ‘standard’ policy that
provides a similar level of benefits to the ZFW for a fixed premium vi . Once substitutive policy
holders reach the age of 65 their contracts are terminated and they switch to a standard
policy under the WTZ. Substitutive VHI policy holders whose premiums have been higher
than the WTZ premium for three consecutive years can also switch to the WTZ.
The WTZ premium is more than 20 per cent higher than the average ZFW contribution, and
unlike ZFW cover, a standard policy does not cover the policy holder’s dependants, who must
be separately insured. Another essential difference from the ZFW is that the WTZ provides
benefits in cash rather than kind.
After the WTZ was established, it was common for private insurers to raise the premiums of
high risk substitutive VHI policy holders to such an extent that these policy holders eventually
became eligible for WTZ cover. Because WTZ premiums only cover half the cost of the
benefits they provide, private insurers receive full compensation from a central equalisation
fund financed by annual solidarity contributions from substitutive VHI policy holders. This
contribution amounts to about 16 per cent of the average substitutive VHI premium for policy
holders aged under 19 and about 32 per cent for policy holders aged 20 to 64. Since 1986
substitutive VHI has lost 17 per cent of its market share to the WTZ (Mossialos and Thomson
2002). In 1994 the Dutch government curbed private insurers’ incentives to push non-elderly
high risk individuals into the WTZ by restricting full compensation to WTZ members aged
under 65.
By the early 1990s the Dutch government realised that the WTZ did not fully remove barriers
to access, but did not take action at that time as it was planning to reform the whole system of
health insurance (den Exter et al. 2002). It was only later, when these plans had been
abandoned, that the government introduced further measures to protect older people – mainly
by raising the income threshold, so that more older people were eligible for cover under the
ZFW vii .
Discussion and conclusions
Exclusion and opt out policies in Germany and the Netherlands date back to the introduction
of compulsory health insurance for blue-collar workers. Over time they have provided private
insurers with strong incentives to select low risk individuals and restrict access and choice for
high risk individuals. They have also led to a situation in which private insurers are able to
shift financial risk to other institutions. For example, the GKV in Germany acts as insurer of
17

last resort and in the Netherlands high risk individuals who are excluded from the ZFW can be
covered by the WTZ, where their health care costs are subsidised by non-elderly substitutive
VHI policy holders.
In recent decades governments in both countries have intervened heavily in the market for
substitutive VHI, introducing reforms to bolster the finances of the statutory health insurance
scheme, to ensure access to affordable substitutive cover for vulnerable groups of people and
to increase levels of consumer protection. Despite these efforts, the complexities created by
the existence of exclusion and opt out policies and the need for successive adjustments
increasingly provoke controversy. Dissatisfaction with the current system, combined with
concerns about the future sustainability of statutory health insurance in the face of
demographic and technological changes, has led to proposals for a radical overhaul of health
insurance in each country.
In 2001 the Dutch government announced its intention to abandon the policy of excluding
those with incomes above the threshold from statutory coverage and extend ZFW coverage to
the whole population (Sheldon 2001; Maarse 2002). However, the government was defeated
in general elections that took place the following year. The incoming government promised to
introduce a single system of compulsory health insurance for primary and acute care
operated by competing private insurers, along the lines of the proposals originally mooted by
the Dekker Commission in the late 1980s and re-formulated as the Simons Plan in the early
1990s, but this proposal was put on hold by the government’s subsequent collapse (Maarse
2002; Hamilton 2003). Key features of the proposed system included open enrolment, flatrate
premiums, tax subsidies to finance premiums for children, cost sharing in the form of a
mandatory minimum deductible and risk adjustment between insurers.
Reform of health insurance also played a central role in the German general election
campaign in 2002. Although the re-elected government adopted a more moderate approach,
introducing a reform to restrict people from opting out of the statutory health insurance
scheme (see above), debates about the relationship between statutory and substitutive VHI
coverage persist and, as in the Netherlands, there have been calls to abolish the dual system
and replace it with a compulsory system based on competition between private insurers
(Henke 2002).
The Dutch proposals for reform and policy debates in Germany share some similarities,
arising from mutual dissatisfaction with a dual system that is seen to be overly complex and
subject to perverse incentives. The fact that they both opt for compulsory private health
insurance may be indicative of a belief in the ability of competitive markets to produce
efficiency gains, but also reflects strong opposition to a universal statutory system from
interest groups such as private insurers, civil servants and employers.
18

There are several issues to be considered in moving from a statutory system based on
solidarity principles to a compulsory system operated by private insurers. In order to facilitate
competition and guarantee real choice for all consumers, compulsory private health insurance
would have to be accompanied by a robust system of risk adjustment between insurers,
improved mobility between plans, increased transparency, standardised benefits and better
information and protection for consumers.
Due to their capacity to avoid or shift financial risk, private insurers in Germany and the
Netherlands currently have limited incentives to compete on the basis of price and quality.
Although substitutive VHI does appear to offer advantages for some policy holders, the
possibility of real choice and lower prices is often constrained by insufficient information and
weak consumer protection. While some of these issues could be addressed – for example, by
introducing mechanisms to increase mobility between private insurers – others might be more
difficult to overcome.
Adequate risk adjustment is expensive to administer and technically difficult to implement
(Beck and Zweifel 1998; Puig-Junoy 1999; van de Ven et al. 2000). Even the relatively
sophisticated mechanisms currently applied to sickness funds in Germany and the
Netherlands demonstrate limited predictive power and do not sufficiently reduce incentives to
select risks (Schut and van Doorslaer 1999; Busse 2001). An analysis of Dutch sickness
funds’ non-medical expenditure, based on a sample of sickness funds, shows that they spend
more than three times as much on selection (€10 per member) as on efficiency measures (€3
per member). Risk selection is likely to present a greater challenge under a system of
compulsory private insurance. When the non-medical expenditure of sickness funds was
compared to that of a sample of private insurers, the latter were found to spend almost three
times as much as the former on selection (€28 per insured) and about a third less on
efficiency measures (€2) (Douven and Westerhout 2000).
Given the high administrative costs incurred by private insurers, including the costs of
selection, it is questionable whether a system of compulsory private health insurance would
succeed in delivering the efficiency gains expected from a competitive market. In 1999
German private insurers spent 10.2 per cent of their premium income on administration,
compared to 5.09 per cent in the GKV in 2000. Private insurers involved in substitutive VHI
and the WTZ in the Netherlands also spend a much higher proportion of their total costs on
administration (12.7 per cent in 1999) than sickness funds involved in the ZFW (4.4 per cent)
(Vektis 2000).
Furthermore, private insurers in both countries have been slow to adopt ‘managed care’
strategies such as vertical integration, selective contracting or monitoring of providers’
19

ehaviour to lower their unit costs. Until recently private insurers in Germany showed a
reluctance to restrict substitutive VHI policy holders’ choice of provider through selective
contracting, partly due to the provision of cash benefits. Some private insurers have invested
in the establishment of provider networks (Datamonitor 2000b: 88). In such situations, the
compensation for restricted choice for policy holders may be the receipt of benefits in kind
rather than in cash. Managed care is not common among Dutch private insurers either,
largely because the substitutive VHI market is fragmented and providers tend to be wellorganised,
resulting in poor bargaining power for insurers (Westerhout 1999), but also due to
the difficulty of obtaining licences to open clinics or hospitals and other regulatory restrictions
(Schut 1995; Schut 2002).
Going beyond technical issues, some analysts have suggested that a system of private health
insurance within the European Union would be subject both to competition law and to
legislation on the single market, particularly as the European Commission’s Third non-life
insurance directive applies to health insurance (European Communities 1992; Raad voor de
Volksgezondheid en Zorg 2000; Palm 2001; Hamilton 2003). This might have negative
consequences for health policy objectives such as accessibility and solidarity. Discussion
about compatibility with EU law has played a key role in the Dutch context, influencing the
government’s 2001 decision to extend the ZFW.
Analysis of the way in which private insurers offering substitutive VHI operate in Germany and
the Netherlands raises serious questions about the equity and efficiency implications of
moving to a system of compulsory private health insurance. Although the dual existence of
statutory and substitutive VHI results in inefficiencies and may inflate costs in the health
system as a whole, replacing the current system with compulsory private health insurance is
unlikely fully to address existing concerns and may give rise to further challenges.
20

Tables
Table 1 Statutory health insurance in Germany and the Netherlands, 2002
Germany
Netherlands
Statutory coverage (% population) GKV compulsory 75%
GKV voluntary 13%
LTC 100%
Employee contributions (% of gross
earnings)
Employer contributions (% of
employee’s gross earnings)
variable; average 6.75% of
gross earnings
variable; average 6.75% of
employee’s gross earnings
Annual income threshold €45,900 (raised from €41,400
in 2003)
AWBZ 100%
ZFW 65%
1.70% (ZFW)
10.25% (AWBZ)
6.25% (ZFW)
0% (AWBZ)
€30,700 (ZFW)
Source: Authors’ estimates based on MISSOC 2003, Busse 2000 and den Exter 2002
21

Table 2 Different levels of health insurance in the Netherlands, 2000
Type of care Scheme Insurers %
covered
Type %
TEH
First level 44%
Long-term care
Mental health care
Care for disabled
people
AWBZ
Sickness funds
and private
insurers
100.0 Compulsory
Second level 53%
Outpatient and ZFW Sickness funds 64.6 Compulsory
inpatient care
Substitutive VHI Private insurers 24.7 Voluntary
WTZ* Private insurers 4.2 Voluntary
PZV** Sickness funds 4.9 Compulsory
Uninsured - 1.6 -
Third level 3%
Other Complementary /
Supplementary
VHI
Sickness funds
and private
insurers
Source: Authors’ estimates based on Vektis 2000 and den Exter 2002
TEH: total expenditure on health care
* WTZ: scheme created by the 1986 Health Insurance Access Act
** PZV: scheme for civil servants
60.0 Voluntary
22

Table 3 Health insurance options in Germany and the Netherlands, 2002
Germany
Netherlands
People with earnings / incomes under the threshold
Employees and their
Compulsory GKV members Compulsory ZFW members
dependants
Self-employed
Excluded from the GKV unless Compulsory ZFW members
they have been members
previously
Aged 65+ Compulsory GKV members Voluntary ZFW members
Voluntary exit from the ZFW
People with earnings / incomes above the threshold
Employees and their
Voluntary GKV members Excluded from the ZFW
dependants
Voluntary exit from the GKV
Self-employed
Excluded from the GKV unless Excluded from the ZFW
they have been members
previously
Aged 65+
Voluntary GKV members
Voluntary exit from the GKV
Voluntary ZFW members
Voluntary exit from the ZFW
Other groups
Civil servants Excluded from the GKV Compulsory PZV members
Substitutive VHI policy holders
aged < 65
Substitutive VHI policy holders
aged 65+
Entry to the GKV only if they are
< 55 and their incomes fall
below the threshold
No entry to the GKV for those
aged 55+
Entry to the WTZ only if their
premiums are higher than the
maximum for their age group
and they have been privately
insured for at least 3 years
Compulsory exit from
substitutive VHI
Voluntary entry to the WTZ
Source: Authors’ estimates based on Busse 2000 and den Exter 2002
Note: Where people can voluntarily exit the GKV or ZFW, they can purchase substitutive VHI
or be uninsured.
23

Table 4 Age distribution in the Dutch population, the ZFW, substitutive VHI and the
WTZ in 2000
Age % Population % ZFW % Substitutive
VHI and WTZ
0-19 24.4 21.3 30.9
20-64 62.0 63.4 59.0
65+ 13.6 15.2 10.1
Total 100.0 100.0 100.0
Source: Vektis 2000
24

Table 5 Aspects of substitutive VHI market conduct in Germany and the Netherlands
Germany
Netherlands
Open enrolment No No
Can insurers reject Yes
Yes
applications?
Pre-existing conditions Excluded if known at time of
underwriting and not disclosed;
covered for a higher premium if
declared
Can be excluded or covered for a
higher premium
Premium rating Risk rating (age, sex, health status) Risk rating (age)
Dependants covered? Must purchase separate policy Must purchase separate policy
Employer contribution Up to 50% up to GKV average
maximum contribution; only to
specialist insurers
No
Can insurers terminate
policy?
No
No; but policies automatically
terminated at age 65 with move to
the WTZ
Cover Lifetime Annual
Funding system Capital: non-transferable ageing Pay as you go: pooling by age group
reserves
Sales to groups (%
total sales)
Choice of insurer
6.5% 34.5% in 1980; 53.8% in 1998 and
55.9% in 2001
Yes; but in practice limited to new
entrants
Choice of benefits Yes Yes
Standard package
required by law
Benefits in cash or in
kind?
No; benefits similar to GKV, but wide
variations at the margin
Insured are mainly reimbursed;
some benefits in kind
Yes; but in practice limited to new
entrants
No; benefits similar to ZFW, but
variations at the margin
Insured are mainly reimbursed;
some benefits in kind
Cost sharing Yes; usually deductibles Yes; usually deductibles
Sources: Authors’ estimates based on various sources
25

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i
Substitutive VHI can be distinguished from other types of VHI available within the European Union. Complementary
VHI is purchased to cover services only partially covered or excluded by the statutory health insurance scheme (for
example, statutory user charges or dental care). Supplementary VHI is purchased to cover faster access and
increased choice of treatment or provider.
ii
Private insurers had based their premium calculations on average life expectancy, failing to account for the longer
than average life expectancy enjoyed by substitutive VHI policy holders, who tend to come from higher socioeconomic
groups (Mossialos and Thomson 2002).
iii
From €41,400 to €45,900 per year. The contribution ceiling and the threshold for returning to the GKV remain at
€41,400.
iv The average GKV contribution rate has also increased over time, rising from 10.5 per cent of gross earnings in
1975 to 12.3 per cent in 1991, 13.6 per cent in 2000 and 14 per cent in 2002 (Busse 2002).
v The average fee charged is €188 per person covered (excluding children covered as dependants) (den Exter
2002).
vi
The WTZ now covers other groups, such as students whose parents are members of the ZFW.
29

vii
Changes to the income threshold took place in 1994 (the van Otterloo Act), 1997 (an amendment to the Sickness
Funds Act), 1998 (the Health Insurance (Restructuring) Act) and 2000 (den Exter 2002).
30