The Demand for Private Medical Insurance in the UK: A Cohort Analysis

Abstract

This paper examines the determinants of the demand for private health insurance in the United Kingdom from 1978 to 1996 using a pseudo-cohort panel. The focus is on the impact of public and private sector quality, generational change, and past purchase on demand. The results indicate that there has been generational change in buying behaviour, that the number of senior doctors employed in the public sector impacts upon demand for the private alternative, and that there is limited impact of habit in purchase. Changes to the structure of labour contracts in the NHS may affect demand for the private alternative. Since the mid-1980s governments in the United Kingdom have sought to increase the extent of private finance for welfare provision. The state has withdrawn from the public finance of housing and made widespread changes to pension provision. While public funding for hospital and primary health care has been maintained, the scope of state financed care has been reduced at the margins. The result has been a considerable growth in the numbers buying private health care (Burchardt et al., 1999). This paper examines the determinants of the demand for private health insurance in the United Kingdom. Understanding the purchase of private health insurance in the United Kingdom is of general interest because many governments are trying to encourage greater private finance of health care, but is of more specific interest because it provides an understanding of the interaction between public and private welfare provision. Private medical insurance in the United Kingdom is supplementary to NHS care. Purchase is optional and purchase does not preclude use of the NHS nor, with the exception of the minor amount of tax relief to the over 60s, does it reduce the buyer's contributions to the tax-financed NHS. At a theoretical level, models of