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Many countries rely on social health insurance supplied by competing insurers to enhance fairness and efficiency in healthcare financing. Premiums in these settings are typically community rated per health plan. Though community rating can help achieve fairness objectives, it also leads to a variety of problems due to risk selection, that is, actions by consumers and insurers to exploit “unpriced risk” heterogeneity. From the viewpoint of a consumer, unpriced risk refers to the gap between her expected spending under a health plan and the net premium for that plan. Heterogeneity in unpriced risk can lead to selection by consumers in and out of insurance and between high- and low-value plans. These forms of risk selection can result in upward premium spirals, inefficient take-up of basic coverage, and inefficient sorting of consumers between high- and low-value plans. From the viewpoint of an insurer, unpriced risk refers to the gap between his expected costs under a certain contract and the revenues he receives for that contract. Heterogeneity in unpriced risk incentivizes insurers to alter their plan offerings in order to attract profitable people, resulting in inefficient plan design and possibly in the unavailability of high-quality care. Moreover, insurers have incentives to target profitable people via marketing tools and customer service, which—from a societal perspective—can be considered a waste of resources. Common tools to counteract selection problems are risk equalization, risk sharing, and risk rating of premiums. All three strategies reduce unpriced risk heterogeneity faced by insurers and thus diminish selection actions by insurers such as the altering of plan offerings. Risk rating of premiums also reduces unpriced risk heterogeneity faced by consumers and thus mitigates selection in and out of insurance and between high- and low-value plans. All three strategies, however, come with trade-offs. A smart blend takes advantage of the strengths, while reducing the weaknesses of each strategy. The optimal payment system configuration will depend on how a regulator weighs fairness and efficiency and on how the healthcare system is organized.

Purpose - To analyse the development of pharmaceutical policy in the Dutch market for outpatient prescription drugs since the early 1990s. Methodology - A literature review and document analysis is performed to examine the effects of pharmaceutical policy on the performance of the Dutch market for outpatient prescription drugs since the early 1990s. Findings - Government efforts to control prices of pharmaceuticals were effective in constraining prices of in-patent drugs, but had an opposite effect on the prices of generic drugs. The gradual transition towards managed competition - that particularly gained momentum after the introduction of the new universal health insurance scheme in 2006 - appears to be more effective in constraining prices of generic drugs than earlier government efforts to control these prices. Originality - Comparative analysis of the impact of price regulation and managed competition on generic drug prices in the Netherlands. Implications - Implications of the changing role of health insurers are discussed for the future market for prescription drugs and role of pharmacies in the Netherlands.