Abstract:

Abstract: Risk adjustment schemes (RAS) within social insurance are designed to prevent health insurers from engaging in risk selection. We show that the current German RAS still creates incentives for insurers to select risk. In particular the geographic range of RAS, the age-adjusters and financing health insurance by means of wage contributions rather than premiums create incentives for risk selection. We discuss alternative to RAS such as health insurance premiums complemented by means tested transfers which could reduce some of the incentive problems.