Risk Selection and Complementary Health Insurance: The Swiss Approach

A common approach to avoid risk selection in health insurance markets is to define and enforce a community-rated basic benefit package. The market for complementary insurance is usually completely separate from the market for basic health insurance. In Switzerland, however, the basic benefit package and complementary insurance are offered by the same insurer. Risk-based premiums are allowed with respect to complementary insurance. In this paper, the Swiss integration approach is compared to the separation approach. It is shown that under the integration approach insurers creamskim by selling complementary insurance to low risks at a discount. Nevertheless, the integration approach can be Pareto-superior if the cost savings due to the integration of basic and complementary insurance are sufficiently large.