In 1996 insurees in Germany's statutory health insurance system were given a right to choose their sickness fund. To ensure that all funds had an equal starting position, a risk structure compensation scheme based on income and average expenditure by age and sex was introduced. From an analysis of expenditure and transfers, data on sickness fund membership and a published survey, the following effects can be identified: sickness funds merged, with a reduction in nuber from 1221 to 420 between 1993 and 2000; the risk compensation scheme narrowed differences in contribution rates, insurees left the more expensive funds for cheaper ones; and increasing transfer sums indicate further risk segregation. Thus, the compensation mechanism will have to be retained permanently, althought modifications are likely.