Supplementary Private Health Insurance in Selected Countries: Lessons for EU Governments?

Abstract

A famous idea to maintain affordable health expenditures is to cut back statutory health insurance (SHI) to a basic insurance and to widen the field for supplementary private health insurance (PHI), permitted to cover the remaining benefits and to apply managed care mechanisms. This is supposed to lower public health expenditures and to enhance cost containment and quality of service. To test these reasonings, the article draws empirical evidence from health insurance markets of Australia (AUS), Canada (CAN), and Switzerland (CH) applying a structure, conduct, and performance (SCP) framework. Irrespective of good preconditions for competition, PHI fails to meet the claims in these countries. Quality improvements cannot be expected, as managed care mechanisms are actually not applied. Expensive cream skimming arises instead. Particularly, the unregulated PHI markets (CAN and CH) perform worse compared to their SHI counterparts concerning total expenses and administrative expenses per insuree, while the more regulated PHI market (AUS) can keep up with its SHI pendant. Neither a regulation-to-cost-containment trade-off nor an equality-to-cost-containment trade-off occurs. However, since strong regulation encourages adverse selection, additional incentives are necessary, but they might counteract the aim of lowering public health expenditures. (JEL codes: H51, G22, I11, I18, L1) Copyright The Author 2010. Published by Oxford University Press on behalf of Ifo Institute for Economic Research, Munich. All rights reserved. For permissions, please email: journals.permissions@oxfordjournals.org, Oxford University Press.