Exit, Voice or Loyalty? An Investigation into Mandated Portability of Front-Loaded Private Health Plans

In a National Bureau of Economic Research Working Paper, Juan Pablo Atal and colleagues, including Hanming Fang, study how a mandate designed to increase competition in the German private health care market influences rates of consumers switching insurers or switching plans within an insurer. In the German system, those who opt into private insurance are required to front-load premium costs, so that younger, healthier consumers pay disproportionately into old-age provisions to offset increased costs for older enrollees. Before a 2009 mandate, consumers who switched insurers could not transport previously paid old-age provisions, and were required to again pay the high upfront costs. The study examined the 2009 mandate, which required portability of already-paid provisions from one insurer to another. The researchers correctly hypothesize that, due to increased competition between insurers, the mandate allowed older, sicker enrollees to re-negotiate their plans with insurers to receive better coverage. Despite increased competition, few consumers chose to switch to an alternative insurer, and most preferred to re-negotiate a plan with their current insurer. Overall, the findings demonstrated that health care consumers make active use of increased sovereignty and bargaining power when policymakers enable them to do so.