Private Health Insurance Premiums Research Articles

Illinois Transplant Fund Experience: Is It a Pathway to Increased Transplant Access for Hispanic Patients With Kidney Failure?

The Illinois Transplant Fund, established in 2015, provides private health insurance premium support for noncitizen patients with kidney failure in Illinois and thus allows them to qualify for kidney transplants. Our objective was to describe trends in kidney transplant volumes over time to inform the development of a hypothesis regarding the impact of the Illinois Transplant Fund on kidney transplant volumes for adult Hispanic patients with kidney failure in Illinois, especially noncitizen patients. Retrospective study. We used data on the annual number of kidney transplants and kidney failure prevalence aggregated to the national and state levels from the Organ Procurement and Transplantation Network and United States Renal Data System, respectively. The annual number of transplants as a percentage of prevalent kidney failure cases among adults over time from 2010 to 2020 by race/ethnicity for all payer and private insurance-paid transplants and the annual number of transplants by citizenship status (for Hispanic patients only) were examined for the United States (US), Illinois, and 6 selected US states. Descriptive study. From pre- to post-Illinois Transplant Fund, the average annual number of transplants as a percentage of the average annual prevalent kidney failure cases for Hispanic adults increased by 4% in Illinois while the same figure increased by 33% for privately insured transplants. The observations reported in this paper cannot be interpreted as evidence for the program's impact. Observed trends suggest plausibility of developing a hypothesis that Illinois Transplant Fund's introduction may have contributed to improvement in kidney transplantation access for Hispanic patients in Illinois, especially noncitizens, but cannot constitute evidence in support of or against this hypothesis. Future research should test whether the Illinois Transplant Fund improved access to kidney transplants for noncitizens with kidney failure. Health policies regarding kidney transplant access for undocumented residents vary widely by state. The Illinois Transplant Fund (ITF) provides financial support for health insurance premiums, so undocumented patients with kidney failure in Illinois can qualify for a kidney transplant. In this study, we reported kidney transplant trends in Illinois before and after the creation of the ITF along with kidney transplant trends in the US overall and selected states that share similarities to Illinois.

Testing for selection bias and moral hazard in private health insurance: Evidence from a mixed public-private health system.

Separating selection bias from moral hazard in private health insurance (PHI) markets has been a challenging task. We estimate selection bias and moral hazard in Australia's mixed public-private health system, where PHI premiums are community-rated rather than risk-rated. Using longitudinal cohort data, with fine-grained measures for medical services predominantly funded by PHI providers, we find consistent and robust estimates of advantageous selection among hospitalized cardiovascular disease (CVD) patients. Specifically, we show that in addition to their risk-averse attributes, CVD patients who purchase PHI use fewer services that are not covered by PHI providers (e.g., general practitioners and emergency departments) and have fewer comorbidities. Finally, unlike previous studies, we show that ex-post moral hazard exists in the use of specific "in-hospital" medical services such as specialist and physician services, miscellaneous diagnostic procedures, and therapeutic treatments. From the perspective of PHI providers, the annual cost of moral hazard translates to a lower bound estimate of $707 per patient, equivalent to a 3.03% reduction in their annual profits.

Health-related out-of-pocket expenses for children living with rare diseases - tuberous sclerosis and mitochondrial disorders: A prospective pilot study in Australian families.

We aimed to describe health-related out-of-pocket (OOP) expenses incurred by Australian families living with children with chronic and complex diseases. A prospective pilot study of OOP expenses in families with children with tuberous sclerosis (TS) or mitochondrial disorders (MD) in 2016-2017. An initial survey assessed the family's financial situation, child's health functioning and estimated previous 6 months' and lifetime OOP expenses. Thereafter, families completed a survey each month for 6 months, prospectively tracking OOP expenses. Initial surveys were completed by 13 families with 15 children; median age 7 years (range: 1-12); 5 with MD, 10 with TS. All families reported OOP expenses: 38% paid $2000 per annum, more than double the annual per-capita OOP costs reported for Australia by the Organisation for Economic Co-operation and Development. Eight families estimated $5000-$25 000 in OOP expenses over their child's lifetime and 62% of mothers reduced or stopped work due to caring responsibilities. Eleven families paid annual private health insurance premiums of $2000-$5122, but 72% said this was poor value-for-money. Prospective tracking by eight families (9 children) identified the median OOP expenditure was $863 (range $55-$1398) per family for 6months. OOP spending was associated with visits to allied health professionals, non-prescription medicines, special foods, supplements and disposable items. Eight families paid for 91 prescription medications over 6months. All families caring for children with TS or MD reported OOP expenses. A larger study is needed to explore the affordability of health care for children living with a broader range of chronic diseases.

Recent estimates of the out-of-pocket expenditure on health care in Australia.

Objective The aims of this study were to estimate the average annual out-of-pocket (OOP) expenditure on health care by households in Australia in 2015-16, and to compare this with the estimate for 2009-10. Methods Data from the most recent Household Expenditure Survey (HES) conducted by the Australian Bureau of Statistics were used. Various statistical methods were used to estimate the annual OOP expenditures at the household and national levels. Results The average annual OOP expenditure was A$4290 per household, representing 5.8% of the amount spent on all goods and services. Private health insurance (PHI) premiums, although not a direct expenditure on health care, were 40.6% of the total OOP expenses. Of the remaining 59.4%, nearly half was spent on doctors and other health professionals, and approximately one-third was spent on medicines. Dental treatments and specialist consultations were the most expensive, whereas visits to general practitioners incurred the least OOP expenditure. Households with PHI (58.6%) spent fourfold more on health care than those not insured. Compared with the 2009-10 survey, the biggest increases were in the cost of PHI (50.7%) and copayments to specialists (34.8%) and other health professionals (42.0%). Conclusions OOP expenditure on health care as a proportion of the total household expenditure on all goods and services has increased by more than 25% between 2009-10 and 2015-16. What is known about the topic? Australian households incur OOP expenses for health care in Australia for a wide range of goods and services, such as copayments to doctors and other health professionals beyond the Medicare rebates, the cost of medicines and other pharmaceutical goods not covered entirely by the Pharmaceutical Benefits Scheme and PHI premiums. Although other estimates of OOP expenditure are available in official reports of the Australian Institute of Health and Welfare, they are based on administrative records rather than consumer reports, and cannot be disaggregated by item or the characteristics of households. What does this paper add? This paper provides detailed information on OOP expenditure on health care as reported by a probability sample of households interviewed for the HES conducted by the ABS during 2015-16. These estimates of OOP expenditure, based on consumer reports, add a further dimension to the information available from administrative records only. What are the implications for practitioners? Practitioners should take account of the effect of increasing copayments for their services, especially on patients belonging to the lower socioeconomic categories. Increasing copayments may lead to people foregoing medical care. Health planners and politicians should note the steady upward drift in OOP expenses and factor these into their policies for future funding of health care.

Out-of-pocket healthcare expenditure in Australia: trends, inequalities and the impact on household living standards in a high-income country with a universal health care system

BackgroundPoor health increases the likelihood of experiencing poverty by reducing a person’s ability to work and imparting costs associated with receiving medical treatment. Universal health care is a means of protecting against the impoverishing impact of high healthcare costs. This study aims to document the recent trends in the amount paid by Australian households out-of-pocket for healthcare, identify any inequalities in the distribution of this expenditure, and to describe the impact that healthcare costs have on household living standards in a high-income country with a long established universal health care system. We undertook this analysis using a longitudinal, nationally representative dataset – the Household Income and Labour Dynamics in Australia Survey, using data collected annually from 2006 to 2014. Out of pocket payments covered those paid to health practitioners, for medication and in private health insurance premiums; catastrophic expenditure was defined as spending 10% or more of household income on healthcare.ResultsAverage total household expenditure on healthcare items remained relatively stable between 2006 and 2014 after adjusting for inflation, changing from $3133 to $3199. However, after adjusting for age, self-reported health status, and year, those in the lowest income group (decile one) had 15 times the odds (95% CI, 11.7–20.8) of having catastrophic health expenditure compared to those in the highest income group (decile ten). The percentage of people in income decile 2 and 3 who had catastrophic health expenditure also increased from 13% to 19% and 7% to 13% respectively.ConclusionsOngoing monitoring of out of pocket healthcare expenditure is an essential part of assessing health system performance, even in countries with universal health care.

Social Determinants, Drug And Device Prices, And More

Social Determinants, Drug And Device Prices, And More

Why are employer-sponsored health insurance premiums higher in the public sector than in the private sector?

In this article, we examine the factors explaining differences in public and private sector health insurance premiums for enrollees with single coverage. We use data from the 2000 and 2014 Medical Expenditure Panel Survey-Insurance Component, along with decomposition methods, to explore the relative explanatory importance of plan features and benefit generosity, such as deductibles and other forms of cost sharing, basic employee characteristics (e.g., age, gender, and education), and unionization. While there was little difference in public and private sector premiums in 2000, by 2014, public premiums had exceeded private premiums by 14 to 19 percent. We find that differences in plan characteristics played a substantial role in explaining premium differences in 2014, but they were not the only, or even the most important, factor. Differences in worker age, gender, marital status, and educational attainment were also important factors, as was workforce unionization.

The potential downstream effects of proposed changes in Australian private health insurance policy: The case for naturopathy

The Australian government has recently announced major reforms to the private health insurance (PHI) system. Amongst the changes are the removal of government-subsidised PHI rebates for consultations with most unregistered complementary medicine practitioners, including naturopathy. However, there are several doubts about these reforms, as this commentary explains, which primarily relate to (1) the basis of the decision, and (2) the consequences of the proposed changes. In terms of the former, an insufficient clinical evidence base was claimed to be the main driver of this decision. However, the evidence informing this decision had several limitations, and in the case of naturopathy, was somewhat contradictory. The absence of enforceable standards (from statutory registration) was another factor contributing to the decision; yet, for naturopathy, this has largely been the product of government inaction, rather than a lack of action from the profession. In terms of the downstream effects of these reforms, these could be considerable, including mass membership withdrawal from ancillary (extras) cover and cost-shifting to the public health sector; potentially leading to a rise in PHI premiums, increased demand for general practice services, and a rise in the number of avoidable hospitalisations. The proposed changes also deviate from international standards and declarations, and contravene key performance indicators of a quality health care system. In light of these concerns, the commentary calls for an immediate rethink of the intended PHI reforms, at least for naturopathy.

Sub-Ethnic and Geographic Variations in Out-of-Pocket Private Health Insurance Premiums Among Mid-Life Asians.

This study examined out-of-pocket premium burden of mid-life Asian Americans by comparing six sub-groups of Asians after controlling for geographic clustering at the county and state levels. The 2007-2011 National Health Interview Survey was linked to community-level data and analyzed for 4,628 Asians (ages 50-64), including 697 Asian Indians, 1,125 Chinese, 1,393 Filipinos, 434 Japanese, 524 Koreans, and 455 Vietnamese. Non-Hispanic Whites were included as a comparison group ( n = 48,135). Three-level multilevel modeling (state > county > individual) was conducted. Koreans and Vietnamese were found as vulnerable sub-groups considering their lower private health insurance rates and higher uninsured rates. Among those with private insurance, Asians, specifically Filipinos, paid significantly less than non-Hispanic Whites. Moderate but significant variations in the county- and state-level variance in out-of-pocket premiums were found, especially among mid-life Asians. This study demonstrates the importance of examining within-group heterogeneity and geographic variations in understanding premium burden among mid-life Asians.

Using the Stated Preference Technique for Eliciting Valuations: The Role of the Payment Vehicle

At the core of the stated preference method is choice of payment vehicle. Since payment vehicle is an intrinsic characteristic of a good, the choice of payment vehicle will naturally impact on the valuation of the good. Typical payment vehicles applied in the context of health are income tax levies, out-of-pocket payments at the point of consumption or private health insurance premiums. Where out-of-pocket payments will elicit use value only, private health insurance premiums will also disclose option value, i.e. the utility of knowing that one has access to a healthcare service should one need it. Income tax levies will disclose what in this paper is referred to as citizen's preferences, i.e. individual preferences that include use value, option value as well as (caring) externalities. This paper advocates that researchers design stated preference studies that encompass all relevant dimensions of value, and that serious thought is given to choice of payment vehicle. However, it is important to acknowledge that choice of payment vehicle has other potential implications for valuations. Payment vehicle and provider of services may be strongly linked in people's minds. If respondents implicitly associate a specific type of provider with a certain type of payment vehicle, it is important that any misperception is corrected by way of a precise description of the good being valued. Further, a pertinent issue is the extent to which respondents 'protest' to the stated preference question and how we should deal with these 'protesters'. No agreement currently exists about the procedure used to separate genuine zero values from protest values, nor about the treatment of protest responses in subsequent analyses. Beliefs are strongly associated with protesting, and exclusion of protest bids may therefore exclude individuals who have strong preferences for a payment vehicle. If it is acknowledged that payment vehicle is an intrinsic component of a good, exclusion of respondents who exhibit specific viewpoints may result in biased welfare estimates. Yet another issue is the presence of self-consciousness amongst respondents. If people derive utility from saying they are willing to pay for a public good (social desirability bias or warm glow), this potentially drives a wedge between people's stated value for a good in a survey and people's value for a good provided to them from the government. Tax payments are more binding than out-of-pocket payments. Payment towards public health programs via income tax may therefore generate lower consumer surplus than if the intervention was financed out-of-pocket with the option of opting out both in terms of participation as well as financially. Finally, only a few studies have looked at the impact of frequency of payments. The effect of temporal framing is clearly potentially important and at the same time an unavoidable component of the payment vehicle, yet it remains at present unexplored.

Growth in private payments for health care by Canadian households

IntroductionDespite first-dollar public coverage for hospital and physician services, Canadians spend more privately on health care than citizens of most other developed countries. We quantified recent growth in private payments by Canadian households for health care. MethodsUsing data from 163,081 respondents to Statistics Canada's annual Survey of Household Spending from 1998 to 2009, we calculated inflation-adjusted per-household spending on private health insurance premiums and out-of-pocket payments on six types of health care services. Further, we estimated the prevalence and some socio-economic determinants of households spending over 10% of after-tax income on health care using logistic regression. ResultsWe found that Canadian households spent $19.8 billion on private payments for health care in 2009. This represents an average of $1523 per household—a 37% increase over 1998. The top three spending categories in 2009 were private health insurance premiums ($5.9 billion), dental ($4.9 billion) and prescription drugs ($4.2 billion). Even after adjusting for inflation, expenditure on every category of health care spending increased between 1998 and 2009. The proportion of households spending more than 10% of after-tax income on health care increased by 56% (from 3.3% to 5.2%). Households including a senior, with a low income, and in British Columbia or the Atlantic Provinces were significantly more likely to reach this threshold. InterpretationOver the period studied, the burden of private health care expenditures increased substantially for Canadian households. As direct charges reduce the use of necessary health care services, investigation into the health consequences of these increases is warranted.

민간의료보험 시장 규모 변동에 영향을 미치는 개인 특성

This study examined market size of private health insurance premium and individual characteristics associated with the market size change in Korea, using wave 1 (2008) and wave 2 (2009) of Korea Health Panel. The market size was 24.4 trillion Korean won in 2008 and 26.9 trillion in 2009. The increase rate of private health insurance premium among those who were the elderly, single, or the poor was higher than that among their counterpart respectively. Health status and utilization were insignificant in determining the increase rate of private health insurance premium. These findings were more obvious among the uninsured in 2008 than among the insured in 2008. The increase of private health insurance premium in Korea imply the increase of willingness-to-pay for health risk through private sector. The authors suggest policy intervention for accessability to health care for the underprivileged and weak through enlargement of Korean social health insurance benefit.

The Effect ofHIFA Waiver Expansions on Uninsurance Rates in Adult Populations

To evaluate the effect of the Health Insurance Flexibility and Accountability (HIFA) demonstrations on the rate of uninsured. The policy purpose of the HIFA demonstrations is to encourage "new comprehensive state approaches" that will increase the number of insured. HIFA interventions include changes in benefit packages, eligibility rules for public programs, and state subsidization of private health insurance premiums. Some states emphasized private insurance (premium assistance), whereas others placed greater emphasis on expanded eligibility for public insurance. Data were drawn from the Current Population Survey from 2000 to 2007. The target populations for the HIFA waiver demonstrations consisted of individuals who were eligible for the HIFA waiver demonstrations in demonstration states. The estimation approach was a probit model using a difference-in-differences approach. In states that fully implemented their HIFA waiver, HIFA increased the rate of insurance coverage by 6.4 percentage points on average in the targeted adult population, suggesting that approximately 118,848 adults gained health insurance due to HIFA. Total HIFA adult enrollment in the six states studied was 280,739. The effect size varied by state, with Maine having the largest effect and Illinois the smallest. The results were robust to different specifications of the control group. Our findings suggest that public insurance initiatives that provide states with flexibility regarding eligibility and plan design are a viable policy approach to reducing uninsurance rates.

Public and Private Health Insurance Premiums: How Do They Affect the Health Insurance Status of Low-Income Adults? Childless

The Patient Protection and Affordable Care Act (ACA) will substantially increase public health insurance eligibility and alter the costs of insurance coverage. Using Current Population Survey (CPS) data from the period 2000-2008, we examine the effects of public and private health insurance premiums on the insurance status of low-income childless adults, a population substantially affected by the ACA. Results show higher public premiums to be associated with a decrease in the probability of having public insurance and an increase in the probability of being uninsured, while increased private premiums decrease the probability of having private insurance. Eligibility for premium assistance programs and increased subsidy levels are associated with lower rates of uninsurance. The magnitudes of the effects are quite modest and provide important implications for insurance expansions for childless adults under the ACA.

Australian Private Health Insurance Productivity Growth: Is there Scope to Limit Premium Increases?*

The regulation of Australian private health insurance premiums is not conducive to restricting premium increases because the criteria used by the Commonwealth Government to help set premiums do not consider efficient service delivery. This article examines levels of efficiency and productivity growth in Australian health funds. Efficiency frontiers are constructed using data envelopment analysis (DEA) methods, and Malmquist productivity indexes are constructed for the health funds. Our results demonstrate a wide disparity in productivity growth between large funds and smaller funds and funds open to the public and funds that have restricted public access. Consequently, there is scope for health funds to potentially reduce premium increases, on average, by about 0.4 per cent per year.

Joiners and Leavers Stayers and Abstainers: Private Health Insurance Choices in Australia

The percentage of Australians taking up Private Health Insurance (PHI) was in decline following the introduction of Medicare in 1984 (PHIAC). To arrest this decline the Australian Government introduced a suite of policies, between 1997 and 2000, to create incentives for Australians to purchase private health insurance. These policies include an increased Medicare levy for those without PHI on high incomes, introduced in 1997, a 30% rebate for private hospital cover (introduced 1998), and the Lifetime Health Cover (LHC) policy where PHI premiums are set at age of entry, increasing for each year older than 30 years (introduced 2000). In 2004 the longitudinal study on Household Income and Labour Dynamics in Australia (HILDA), included a series of questions on private health insurance and hospital use. We used the HILDA data to investigate the demographic, health and income factors related to the PHI decisions, especially around the introduction of the Lifetime Health Cover policy. Specifically we investigate who was most influenced to purchase PHI (specifically hospital cover) in 2000 as a response to the Lifetime Health Cover policy deadline. Are those who have joined PHI since the introduction of LHC different from those who joined prior to LHC? What are the characteristics of those who have dropped PHI since the introduction of LHC? We model the PHI outcomes allowing for heterogeneity of choice and correlation across alternatives. After controlling for other factors, we find that LHC prompted moderately well-off working age adults (30-49 yrs) to purchase before the 2000 deadline. Young singles or couples with no children, and the overseas born were more likely to purchase since 2000, while the relatively less well-off continue to drop PHI in spite of current policy incentives.

Senate Finance Committee Shifts Focus to Medicare Package

Because the House of Representatives failed to override the President's veto of legislation to reauthorize and expand the Children's Health Insurance Program (CHIP) Medicare reform has once again become the focus of congressional attention. The House-approved Children's Health and Medicare Protection Act (CHAMP) combined a $50 billion reauthorization and expansion of CHIP with a $40 billion package of changes to Medicare. Unlike the House, the Senate did not include Medicare provisions in its $35 billion CHIP legislation. The final legislation, which was vetoed by President Bush, excluded any Medicare provisions. The Senate Finance Committee is currently considering a Medicare package that includes reductions in reimbursement to Medicare Advantage plans and a “fix” to the scheduled 10% cut in Medicare physician payments. They are also expected to include changes to the Medicare ESRD program. It is likely that the committee's ESRD provisions will include “bundling” and a reduction in the reimbursement rate to hospital-based facilities so that it equals the payment to free-standing facilities. The committee is also considering an increase in the composite rate in 2008 and the development of a statutory update mechanism. The ESRD provisions in the House bill did not provide a statutory mechanism for an annual update, nor an increase in 2008. The House bill reduces federal funding for ESRD by $3 billion over 10 years. The Finance Committee provisions may be budget neutral, and not cut any funds from the ESRD program. Without congressional intervention physicians will have their Medicare payments reduced. This is unacceptable to a majority of the House and Senate, who are concerned that physicians will leave the Medicare program and consequently, that patients will have diffi culty receiving timely and adequate care. The extension, which was approved by the Ways and Means Committee and the full House with no controversy, is drawing signifi cant opposition in the Senate. Insurance companies and large employers are seeking to eliminate the MSP extension from the Medicare package. The kidney community, on the other hand, is unified in its efforts to include this provision in the Senate Medicare package as a means of paying for improvements in the program. It is estimated that the MSP extension will generate a modest savings for Medicare, less than $50 million in 2008 and almost $400 million over five years. According to the most recent U.S. Renal Data System report, only 5,100 of the almost 400,000 patients with ESRD fall within the population who would be affected by a change in MSP. Based on this estimate, experts conclude that the MSP extension would have little or no impact on private health insurance premiums. It is widely assumed that the Finance Committee Medicare package will become the Senate legislation and, because of time constraints, will not be considered on the floor. The Committee package will likely be the basis for future Senate and House discussions. The House-passed ESRD package included a number of provisions being considered by the Finance Committee. The House bundling provision directed CMS to create a bundled payment system for dialysis services and established quality outcome incentive payments and performance standards. It also lowered erythropoiesis stimulating agent payments for large dialysis organizations. While the timeline for final Congressional action is unclear, both the House and Senate leadership are committed to moving a Medicare package to the president before the beginning of 2008. One of the driving forces this year, as in the past, is that without congressional intervention physicians will have their Medicare payments reduced by 10%. This is unacceptable to a majority of the House and Senate, who are concerned that physicians will leave the Medicare program and consequently, that patients will have diffi culty receiving timely and adequate care. Until the final gavel falls on this session of the 110th Congress, the kidney community will be focused on key House and Senate members and the fate of the ESRD program. Patients, providers, suppliers, and other interested parties have much to gain and much to lose, depending upon the outcome of the policy decisions that have been under discussion for much of the year.

A utilização de serviços de saúde por sistema de financiamento

Este artigo analisa, a partir de microdados de 1998 e 2003 da PNAD/IBGE, a utilização de serviços de saúde sob a perspectiva de seu financiamento ou, em outras palavras, sob o prisma do sistema de proteção à saúde pelo qual o serviço foi utilizado: se pelo Sistema Único de Saúde (SUS), ou seja, pelo sistema público financiado por meio de tributos; se por planos e seguros de saúde privados e financiados por prêmios pagos por beneficiários e/ou seus empregadores; ou, finalmente, se mediante a compra direta de serviços (pagamento direto no ato da utilização de serviços). Entre os principais resultados da análise, destacam-se os seguintes: 1) o SUS financia a maioria dos atendimentos e das internações realizados no País, participação que aumentou significativamente entre 1998 e 2003; 2) embora o número absoluto de atendimentos realizados pelos três sistemas de financiamento tenha aumentado, a expansão do SUS foi muito mais significativa e a ela correspondeu uma desaceleração do crescimento do gasto privado direto; 3) o SUS é o principal financiador dos dois níveis extremos de complexidade da atenção à saúde: o de atenção básica e o da alta complexidade.

Health Spending Projections Through 2015: Changes On The Horizon

Growth in national health spending is projected to slow in 2005 to 7.4 percent, from a peak of 9.1 percent in 2002. Private health insurance premiums are projected to slow to 6.6 percent in 2005, with a rebound expected in 2007. The introduction of Medicare Part D drug coverage in 2006 produces a dramatic shift in spending across payers but has little net effect on aggregate spending growth. Health spending is expected to consistently outpace gross domestic product (GDP) over the coming decade, accounting for 20 percent of GDP by 2015.

Why Subsidise Private Health Insurance?

AbstractWhat are the economic rationales for the public subsidy of private health insurance? Inducing more people to purchase private cover has the potential to create a positive fiscal externality, as it frees up the limited public beds and other public resources for people who cannot afford private health insurance. Investigating this quantitatively, based on short‐run demand estimates, we find that the subsidy cannot be justified on the basis of this externality effect alone. We estimate that the optimal subsidy is actually negative, that is, a tax on private health insurance premiums. On the other hand, the externality does finance some of the costs. We then consider a long‐run dynamic version, consistent with the government's stated rationales for the reforms. In this context, the subsidy might be justified, or at least largely offset, by the fiscal externality. We then discuss other rationales for a subsidy and implementation issues.