Summary Social health insurance in Germany is organized as a competitive system. Thus, risk adjustment, which was introduced in 1994, plays a crucial role to achieve a level playing field. Incentives for risk adjustment should be avoided and an interested of sickness funds in managing care should be established. More recently health based risk adjustment replaced the former demographic risk adjustment model. Empirical analysis demonstrates the improvement by health based risk adjustment. Additional fine tuning is on the agenda. Underpayment for the elderly has to be reduced and risk adjustment with regard to sick pay has to be rearranged.