Question

Both in Switzerland and the Czech Republic, a uniform benefit basket of health care services
is defined by the government. In Switzerland, insurance companies can offer lower premiums
for higher cost-sharing plans, while in the Czech Republic they are allowed to extend the
benefits but aren’t allowed to alter premiums. Annually, 3 percent of insured people in the
Czech Republic change their insurance company, while that rate is 7 percent in Switzerland.
Use the concepts developed in 'Health Care' to explain this situation.

Answer 1

The turnover rate is higher into Switzerland largely because of high cost sharing plans where insurer and insured both share specific costs by paying low premium. Now since some customers dont understand this model, we see that the assymetric information causes multiple hidden charges which ultimately leads to higher costs and lower benefits causing higher turnover.

As against this in Czech Republic people pay higher premium and have lower waiting periods and also higher benefits which reduce compliance and complexity and also helps in tax reimbursement on income tax filing which leads to lower turnovers and thus higher tenure for premiums.

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