Measuring Short-term Price Elasticities in Dutch Health Insurance: A New Method

Posted: 16 Jun 2007

See all articles by Rudy Douven

Rudy Douven

CPB Netherlands Bureau for Economic Policy Analysis; CPB Netherlands Bureau for Economic Policy Analysis

Harm Lieverdink

Dutch Healthcare Authority

Marco Ligthart

Netherlands Bureau for Economic Policy Analysis (CPB)

Ivan Vermeulen

Dutch Healthcare Authority

Date Written: June 14, 2007

Abstract

In 2006, the Dutch Health insurance system has been profoundly reformed. All consumers pay on average 50 percent of the costs of basic insurance by a community-rated premium that has to be determined by health insurers. Due to the reforms in 2006, the choice setting for consumers radically changed and about 18% of the total Dutch population changed from health insurer. In this paper we present a new method for measuring premium elasticities. We assume that in the choice process each consumer can choose between a default option, to stay with the current health insurer, or an alternative option, to switch from health insurer. The default option reflects the fact that many consumers are indifferent, or find search costs to high, to actually switch from health insurer. The premium elasticities are now calculated from the number of switchers and from the premium differences between the default and the alternative option. We compare our approach with the more traditional logit type of models used in the literature that assume that all consumers yearly have multiple options and select those health insurers that offer the highest expected utility.

With our new method we show that the Dutch population was very price sensitive after a major health care reform and found an exceptionally high premium elasticity of -6,7 for the year 2006 and -1,7 for the year 2007, while comparable figures for the years 1997-2005, in the Dutch social health insurance without large reforms, were around -0,6. In the Dutch social health insurance 10 million Dutch consumers gained in the past ten years only about 20 millions euro by switching from health insurer. This result, however, was in sharp contrast with the year 2006 were 16 million Dutch consumers gained in the year 2006 about 130 million euros by switching. This number declined to 32 million euros in 2007.

Through the reforms, combined with massive media coverage of premium differences, the population seemed to have become much more aware about their possibilities to switch health plans. One important difference with previous years was that consumers with an individual contract could opt for a lower priced group contract (sometimes with the same insurer). Many consumers, probably those that were most price sensitive, used this opportunity and the share of group contracts in the Dutch population increased from 38% in 2005 to 53% in 2006 and 56% in 2007.

Keywords: health plan choice, premium elasticities, switching costs

JEL Classification: D12, I11, I18, L11

Suggested Citation

Douven, Rudy and Lieverdink, Harm and Ligthart, Marco and Vermeulen, Ivan, Measuring Short-term Price Elasticities in Dutch Health Insurance: A New Method (June 14, 2007). iHEA 2007 6th World Congress: Explorations in Health Economics Paper, Available at SSRN: https://ssrn.com/abstract=993741

Rudy Douven (Contact Author)

CPB Netherlands Bureau for Economic Policy Analysis ( email )

P.O. Box 80510
The Hague, 2508 GM
Netherlands

HOME PAGE: http://www.cpb.nl/nl/org/homepages/rcmhd/

CPB Netherlands Bureau for Economic Policy Analysis ( email )

P.O. Box 80510
The Hague, 2508 GM
Netherlands

HOME PAGE: http://www.cpb.nl/nl/org/homepages/rcmhd/

Harm Lieverdink

Dutch Healthcare Authority ( email )

Postbus 3017
Utrecht, 3502 GA
Netherlands

Marco Ligthart

Netherlands Bureau for Economic Policy Analysis (CPB) ( email )

2508 GM The Hague
Netherlands

Ivan Vermeulen

Dutch Healthcare Authority ( email )

Postbus 3017
Utrecht, 3502 GA
Netherlands

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