Alternative health insurance schemes: a welfare comparison

Voluntary private health insurance among the over 50s in Europe

Using data from Survey of Health, Ageing and Retirement in Europe (SHARE), we investigate the determinants of voluntary private health insurance (VPHI) among the over 50s in 11 European countries and their effects on healthcare spending. First, we find that the main determinants of VPHI are different in each country, reflecting differences in the underlying healthcare systems, but in most countries, education levels and cognitive abilities have a strong positive effect on holding a VPHI policy. We also analyse the effect of holding a voluntary additional health insurance policy on out-of-pocket (OOP) healthcare spending. We adopt a simultaneous equations approach to control for self-selection into VPHI policy holding and find that, only in the Netherlands, VPHI policyholders have lower OOP spending than the rest of the population, whereas in some countries (Italy, Spain, Denmark and Austria), they spend significantly more. This could be due to not only increased utilisation but also cost-sharing measures adopted by the insurers to counter the effects of moral hazard and to keep adverse selection under control.

Comment-Defining health insurance affordability: unobserved heterogeneity matters

Affordability is a vague concept. Bundorf and Pauly [Bundorf, M.K., Pauly, M.V., 2006. Is health insurance affordable for the uninsured? Journal of Health Economics 25 (4), 650-673] address this problem by establishing clear working definitions of affordability, and they use these definitions to estimate the percent of the uninsured who can afford insurance. When they establish their definitions of affordability, they use a microeconomic model that omits essential characteristics of the health insurance market. This comment suggests alternative definitions that better incorporate the structure of the health insurance market, discusses both endogeneity and specification problems that might occur when implementing their econometric model to estimate the fraction of "uninsured afforders," and then recommends ways to reduce omitted variable bias and endogeneity bias.

Comment--defining health insurance affordability: unobserved heterogeneity matters

Affordability is a vague concept. Bundorf and Pauly [Bundorf, M.K., Pauly, M.V., 2006. Is health insurance affordable for the uninsured? Journal of Health Economics 25 (4), 650-673] address this problem by establishing clear working definitions of affordability, and they use these definitions to estimate the percent of the uninsured who can afford insurance. When they establish their definitions of affordability, they use a microeconomic model that omits essential characteristics of the health insurance market. This comment suggests alternative definitions that better incorporate the structure of the health insurance market, discusses both endogeneity and specification problems that might occur when implementing their econometric model to estimate the fraction of "uninsured afforders," and then recommends ways to reduce omitted variable bias and endogeneity bias.

Changes in the demand for private medical insurance following a shift in tax incentives

The 1998 Spanish reform of the Personal Income Tax eliminated the 15% deduction for private medical expenditures including payments on private health insurance (PHI) policies. To avoid an undesired increase in the demand for publicly funded health care, tax incentives to buy PHI were not completely removed but basically shifted from individual to group employer-paid policies. In a unique fiscal experiment, at the same time that the tax relief for individually purchased policies was abolished, the government provided for tax allowances on policies taken out through employment. Using a bivariate probit model on data from National Health Surveys, we estimate the impact of said reform on the demand for PHI and the changes occurred within it. Our findings indicate that the total probability of buying PHI was not significantly affected by the reform. Indeed, the fall in the demand for individual policies (by 10% between 1997 and 2001) was offset by an increase in the demand for group employer-paid ones. We also briefly discuss the welfare effects on the state budget, the industry and society at large.

What should (public) health insurance cover?

In any system of health insurance, a decision must be made about what treatments the insurance should cover. One way to make this decision is to rank treatments by their ratios of health benefits to treatment costs. If treatments that are not offered by the health insurance can be purchased out of pocket, the socially optimal ranking of treatments to be included in the health insurance is different from this standard cost-effectiveness rule. It is no longer necessarily true that treatments should be ranked higher the lower are treatment costs (for given health benefits). Moreover, the larger are the costs per treatment for a given benefit-cost ratio, the higher priority should the treatment be given. If the health budget in a public health system does not exceed the socially optimal size, treatments with sufficiently low costs should not be performed by the public health system if treatment may be purchased privately out of pocket.