Marktordnung und Kostenstruktur in der Privaten Krankenversicherung

Abstract

A number of regulations prevent effective competition in the private health insurance market. Entry is restricted. The effective premium is given by the difference between the premium and a rebate, which is a function of the firm’s surplus. Hence, the effective premium is not known at the time of the purchase. Furthermore, consumers are prevented from cashing in their policies and hence switching from high to low premium firms is associated with a net loss. Thus, the market forces are severely weakened. However, the most serious misallocation in this market is caused by the premium and profit controls. Premiums must be calculated by adding a safety margin to losses and to the other expenses. This markup pricing rule as well as the requirement to return a large fraction of profits to the insured lead to inflated costs, for this pricing rule creates incentives to expand the “rate base” to which the markup is applied. The empirical analysis yields some new insights into the cost structure of German private health insurance firms. Stock companies produce at significantly higher average costs than mutual companies. The cost differences are largely due to different marketing and sales effort. The finding is consistent with the fact that stock companies pursue the profit motive and that this motive is transformed into one of expanding revenues by the markup pricing rule. Thus the empirical analysis suggests that the price and profit control affect the firms’ behavior. It is interesting to note that in other markets stock companies were found to produce at lower or equal cost compared to mutual or public firms.