Do health plans risk-select? An audit study on Germany's Social Health Insurance

This paper evaluates whether health plans in Germany's Social Health Insurance select on an easily observable predictor of risk: geography. To identify plan behavior separately from concurrent demand-side adverse selection, I implement a double-blind audit study in which plans are contacted by fictitious applicants from different locations. I find that plans are less likely to respond and follow-up with applicants from higher-cost regions, such as West Germany. The results suggest that supply-side selection may emerge even in heavily regulated insurance markets. The prospect of risk selection by firms has implications for studies of demand-side selection and regulatory policy in these settings.

► In competitive markets, health plans face incentives to exploit unpriced hetereogeneity in risk.
► Geographic variations create such heterogeneity in the German Social Health Insurance.
► This audit study considers plans' response to fictitious applicants.
► Plans are found to be more responsive to applicants from low-cost regions.