The Dutch risk equalization model and predictable profits: are students and higher educated individuals profitable?

Summary In 2006 a new health insurance system was introduced in the Netherlands. This system comprises mandatory insurance, community rated premiums and open enrollment. Due to this new health insurance system, both incentives and the number of instruments for risk selection increased and a risk equalization model was implemented to overcome those incentives. Nevertheless, this model has been shown to predict healthcare cost imperfect and risk selection may still be profitable. Furthermore, two health insurers introduced health insurance aimed on students and individuals with a higher education imposing the presence of profits due to risk selection. In this research we focus on whether students and individuals with a higher education are profitable, given the current risk adjustment model used in the Netherlands. Using data from an annual health survey, healthcare costs are calculated and a replica of the risk adjustment model in the Netherlands is build. Applying t-test between predicted and actual healthcare costs reveals whether there are predictable profits for students and higher educated. Results show that statistically significant predictable profits are present for students (€137), and absent for higher educated (€27).