What Can the United States Learn from Europe’s Regulated Health Insurance Markets?

Kauer, McGuire, Schillo, and van Kleef (2026) asked how regulated health insurance competition differs between Germany, the Netherlands, Switzerland, and the United States. They examined insurance rules, market structures, coverage and spending statistics, and findings from studies. They found that European systems require broad participation, rely less on profit-driven insurers, and use collective regulation to control prices. The U.S. Marketplace is voluntary, covers only part of the population, and gives insurers more freedom to manage care. Reported differences were substantial: U.S. administrative costs equaled 15% of premiums, versus 3%–5% in Europe, while brand-name drugs cost about three times more.

Why This Article Was Selected for The Policy Scientist

Health insurance regulation reaches beyond insurance markets because it shapes access to care, household financial security, public spending, and systemwide cost control. The article is timely as governments confront rising medical costs while seeking to preserve broad coverage. By showing how four countries balance competition and regulation, it provides a useful framework for evaluating reforms across different institutional settings. Its publication in the influential Journal of Economic Perspectives and the authors’ extensive research in this field strengthen its contribution. The evidence is broad and credible, although it comes from nonstandardized national sources, limiting direct comparison and generalization. Its conclusions remain descriptive, but future studies could strengthen them by applying suitable causal inference techniques to longitudinal, jurisdiction-level data.

Full Citation and Link to Article

Kauer, L., McGuire, T. G., Schillo, S., & van Kleef, R. C. (2026). Regulated competition in health insurance markets on two sides of the Atlantic. Journal of Economic Perspectives, 40(2), 43–68. https://doi.org/10.1257/jep.20251474

Central Research Question

The article examines how regulated competition operates in the individual health insurance systems of Germany, the Netherlands, Switzerland, and the Affordable Care Act Marketplaces in the United States. Each system combines consumer choice among insurers with rules intended to preserve affordability, access, and risk pooling. The central question concerns how institutional design affects the performance of these markets. The authors organize the comparison around three major differences: mandatory and universal participation versus voluntary and partial participation; the degree to which insurers pursue and distribute profits; and the relative reliance on market negotiation or collective regulation to contain health care costs. These differences influence enrollment stability, insurer behavior, risk selection, provider contracting, medical prices, and incentives for cost control.

Previous Literature

The article begins with the economic literature on market failure in health care and health insurance. Arrow established that uncertainty, incomplete information, and the difficulty of specifying future medical needs prevent conventional markets from allocating health care efficiently. Pauly and Zeckhauser developed the analysis of moral hazard, focusing on how insurance reduces the price patients face when consuming care and can increase utilization. Later research expanded this framework by examining the incentives of physicians, provider organizations, and insurers.

The literature on adverse selection explains how differences in expected medical costs influence plan choice. Research by Einav, Finkelstein, and others shows that people with greater health needs tend to select more generous plans when premiums do not fully reflect individual risk. This pattern raises the premiums of generous plans and can drive healthier consumers toward less comprehensive coverage. Insurers may also engage in indirect selection by designing provider networks, drug formularies, customer service, and marketing practices that appeal to profitable enrollees while discouraging people with costly conditions.

Enthoven’s model of regulated competition supplies the article’s principal institutional foundation. His framework joined consumer choice among competing health plans with fixed subsidies and incentives to select cost-conscious delivery systems. Modern versions supplement this framework with risk adjustment, under which insurers receive higher payments for enrollees with greater expected costs. Germany, the Netherlands, and Switzerland combine these market mechanisms with the European principle of solidarity, which links access to medical need and financial contributions to ability to pay. The article connects these established theories to the current organization of four major insurance markets.

Data

The evidence base consists of national administrative statistics, regulatory documents, institutional histories, and findings from previous empirical research. The article reports enrollment, spending, subsidies, insurer participation, market turnover, administrative expenses, provider prices, and pharmaceutical prices. It also compares legal rules governing premiums, benefits, open enrollment, risk adjustment, provider networks, insurer entry, and the distribution of profits.

The four markets differ substantially in scale. Germany’s statutory system covers approximately 75 million people, compared with 18 million in the Netherlands, 9 million in Switzerland, and 23 million in the U.S. Marketplaces. Most descriptive figures refer to 2024 through 2026, although the historical analysis uses earlier data to trace reforms and market consolidation. National agencies and established research organizations supply much of the quantitative evidence. Differences in accounting systems, covered populations, benefit packages, and currencies require cautious interpretation of direct cross-country comparisons.

Methods

The authors employ comparative institutional analysis. They first describe the economic foundations and historical development of regulated competition. They then identify the systems’ shared features before comparing them along the three principal dimensions of participation, insurer objectives, and cost control. Two tables provide a structured comparison of coverage, financing, premiums, risk adjustment, insurer organization, provider contracting, and spending.

Economic theory guides the interpretation of observed differences. The authors use the concepts of moral hazard, adverse selection, risk selection, market power, risk sharing, and organizational incentives to explain how particular rules shape insurer and consumer behavior. The method establishes institutional mechanisms and descriptive patterns rather than estimating causal effects. This design supports a broad comparison of national systems while recognizing the influence of historical, cultural, geographic, and regulatory context.

Findings/Size Effects

The four systems share a common regulatory core. Insurers must accept eligible applicants, provide comprehensive benefits, and participate in systems that redistribute funds according to enrollee risk. Premium regulation limits the extent to which insurers can charge more for poor health. Income-related contributions or public subsidies make coverage more affordable. Risk adjustment compensates insurers that enroll people with higher expected medical costs, while risk-sharing arrangements protect plans from exceptionally expensive cases and periods of policy uncertainty.

Participation rules produce major differences in market stability. Germany, the Netherlands, and Switzerland require health insurance for nearly their entire populations. The U.S. Marketplaces serve people who lack employer-sponsored insurance or eligibility for public programs, and federal law no longer imposes a financial penalty for remaining uninsured. Marketplace enrollment rose from 8 million in 2014 to approximately 23 million in 2026. The expansion of Marketplace coverage and Medicaid reduced the uninsured rate to about half its 2010 level of 16 percent.

Voluntary participation makes subsidies central to the American system. The federal government spent $91 billion on Marketplace premium subsidies in 2023, and 92 percent of enrollees received assistance. Enrollment also changes more frequently. Annual insurer turnover ranges from approximately 5 to 9 percent in the Netherlands and Switzerland and is lower in Germany, whereas turnover exceeds 30 percent in the U.S. Marketplaces. Stable enrollment improves actuarial forecasting, supports longer-term prevention investments, reduces recruitment costs, and makes providers more willing to accept financial risk through alternative payment contracts.

Insurer organization differs across the Atlantic. German and Swiss basic insurers operate under nonprofit requirements. Dutch law permits for-profit insurers, but most plans are foundations or mutual organizations, and commercial entry has remained limited. The United States includes nonprofit insurers and large for-profit corporations with substantial operations in physician services, pharmacy benefits, and other health care markets. American insurers therefore have broader opportunities to earn profits through vertical integration and complementary business lines.

European insurance markets have consolidated substantially. Germany had 1,147 sickness funds in 1990 and 93 insurers in 2026. The Netherlands declined from 33 insurers in 2006 to 20 in 2025, while Switzerland declined from 145 insurers in 1996 to 37 in 2025. The pattern reflects economies of scale, demanding entry requirements, financial risk, and limited profit margins. U.S. Marketplace entry and exit occur more frequently, and insurer participation varies considerably across states.

The systems also use different instruments to control medical spending. Marketplace insurers depend heavily on restricted provider networks, drug formularies, prior authorization, step therapy, and direct negotiations with hospitals and physicians. European systems rely more heavily on government price regulation, national coverage decisions, collective bargaining, and standardized fee schedules. The American approach gives individual insurers greater authority to manage utilization, while the European approach exerts stronger control over prices.

The resulting price differences are substantial. In 2022, an inpatient coronary angioplasty cost approximately $34,000 for a privately insured American patient, compared with about $9,000 in Switzerland and $4,000 in Germany. Average U.S. insulin prices exceeded $35 per dose, while the international average remained below $11. Brand-name drugs generally cost about three times more in the United States than in Europe. Administrative expenses accounted for approximately 15 percent of U.S. Marketplace premiums, compared with 5 percent in Germany, 3 percent in the Netherlands, and 5 percent in Switzerland. These figures connect higher American spending primarily to higher prices rather than greater use of hospitals or physicians.

Conclusion

The comparison establishes that regulated competition operates through a coordinated set of rules governing enrollment, premiums, benefits, insurer payment, and provider contracting. Germany, the Netherlands, and Switzerland use mandatory coverage to create stable risk pools, support long-term planning, and reduce movement into and out of insurance. Their greater reliance on collective price regulation is associated with substantially lower hospital and pharmaceutical prices. The U.S. Marketplaces rely more heavily on subsidies to sustain enrollment and grant insurers greater authority over provider networks, formularies, and utilization management. This structure gives American insurers more tools to limit service use but exposes the market to higher turnover and stronger incentives for indirect risk selection. Across all four systems, risk adjustment and risk sharing remain essential because community-rated premiums otherwise create predictable gains and losses from enrolling particular patients. The article’s central finding is that coverage rules, insurer objectives, and cost-control institutions jointly determine how regulated competition performs.