Private health insurance: implications for developing countries

Private health insurance is playing an increasing role in both high- and low-income countries, yet is poorly understood by researchers and policy-makers. This paper shows that the distinction between private and public health insurance is often exaggerated since well regulated private insurance markets share many features with public insurance systems. It notes that private health insurance preceded many modern social insurance systems in western Europe, allowing these countries to develop the mechanisms, institutions and capacities that subsequently made it possible to provide universal access to health care. We also review international experiences with private insurance, demonstrating that its role is not restricted to any particular region or level of national income. The seven countries that finance more than 20% of their health care via private health insurance are Brazil, Chile, Namibia, South Africa, the United States, Uruguay and Zimbabwe. In each case, private health insurance provides primary financial protection for workers and their families while public health-care funds are targeted to programmes covering poor and vulnerable populations. We make recommendations for policy in developing countries, arguing that private health insurance cannot be ignored. Instead, it can be harnessed to serve the public interest if governments implement effective regulations and focus public funds on programmes for those who are poor and vulnerable. It can also be used as a transitional form of health insurance to develop experience with insurance institutions while the public sector increases its own capacity to manage and finance health-care coverage.     

Private and public cross-subsidization: financing Beijing's health-insurance reform

In 1998, the Chinese government proposed a universal health-insurance program for urban employees. However, this reform has been advancing slowly, primarily due to an unpractical financing policy. We surveyed over 2000 families and evaluated the financial impacts of Beijing's reform on public and private enterprises. We found that most state-owned enterprises provided effective health insurance, whereas most private firms did not; overall, 33% of employees had little or no coverage. On average, employees of private firms were healthier and earned more compared to public firms. Because the premium was proportional to income, private firms would pay more for insurance than the predicted health-care expense of their employees. International firms subsidize the most, contributing more than 60% of their insurance premiums to the employees of the public sector. Such an aggressive cross-subsidization policy is difficult to be accepted by private firms.     

Costs of dying: alternatives to rationing

In western industrialised countries, about 30% of health-care expenditure of retired people is incurred by individuals in their last year of life. The corresponding high costs of dying have led medical philosophers to ask for a rationing of health-care services according to age. By contrast, this paper pursues an individualistic approach. High costs of dying are identified as a consequence of moral hazard on both the demand and supply side of the health-care sector. Health insurance prevents demand for health-care services from decreasing when an individual's residual life expectancy shrinks. Age-related moral hazard can be limited by a coinsurance scheme with a deductible that increases with the age of the insured. Given the high costs of dying, the optimal insurance policy links the coinsurance rate to the age-specific mortality risk.     

Inequities in mental health care after health care system reform in Chile

OBJECTIVES: We compared differences in mental health needs and provision of mental health services among residents of Santiago, Chile, with private and public health insurance coverage. METHODS: We conducted a cross-sectional survey of a random sample of adults. Presence of mental disorders and use of health care services were assessed via structured interviews. Individuals were classified as having public, private, or no health insurance coverage. RESULTS: Among individuals with mental disorders, only 20% (95% confidence interval [CI]=16%, 24%) had consulted a professional about these problems. A clear mismatch was found between need and provision of services. Participants with public insurance coverage exhibited the highest prevalence of mental disorders but the lowest rates of consultation; participants with private coverage exhibited exactly the opposite pattern. After adjustment for age, income, and severity of symptoms, private insurance coverage (odds ratio [OR]=2.72; 95% CI=1.6, 4.6) and higher disability level (OR=1.27, 95% CI=1.1, 1.5) were the only factors associated with increased frequency of mental health consultation. CONCLUSIONS: The health reforms that have encouraged the growth of the private health sector in Chile also have increased risk segmentation within the health system, accentuating inequalities in health care provision.     

Rationing in health care provision: a welfare approach

We study the welfare properties of direct restrictions based on cost-effectiveness and indirect methods represented by waiting lists in a public health care system. Health care is supplied for free by the public health sector, but patients can choose to address their demand elsewhere by stipulating a private health care insurance policy to avoid restrictions. Our model shows that if the individual response to treatment is independent of income and cannot be observed by the patient, the choice of opting out simply depends on income, and the redistributive effects of both instruments are quite similar. In general, restrictions may only improve welfare of relatively rich individuals, usually those that opt out of the public health care system. From a policy point of view, our model casts serious doubts upon the use of these instruments for redistributive purposes.     

The economics of public health: financing drug abuse treatment services

Drug abuse treatment financing exhibits a heterogeneous set of sources from federal, state, and local governments, as well as private sources from insurance, patient out-of-pocket, and charity. A public health model of drug abuse treatment is presented for a market that can be characterized by excess demand in many communities and an implied policy of rationing. According to best estimates, as many as 6.7 million individuals may need treatment, but only an estimated 1.5 million individuals actually participated in treatment episodes. Since, as demonstrated empirically, drug abuse treatment has a robust and positive social net benefit to society, it is perplexing that treatment financing stops with a rationing outcome that inhibits social welfare. The justification for public financing is centered on the external costs of drug addiction, but subsidization is grounded in the reality that a large number of addicted individuals do not have sufficient resources to pay for treatment out-of-pocket, nor do they have private insurance coverage. Social welfare losses are generated by financial arrangements that are inconsistent with rational budgeting theory and as such would lead to non-optimal organization and management of the drug abuse treatment system.     

Regulating private health insurance to serve the public interest: policy issues for developing countries

Private health insurance plays a large and increasing role around the world. This paper reviews international experiences and shows that private health insurance is significant in countries with widely different income levels and health system structures. It contrasts trends in private health insurance expansion across regions and highlights countries with particularly important experiences of private coverage. It then discusses the regulatory approaches and policies that can structure private health insurance markets in ways that mobilize resources for health care, promote financial risk protection, protect consumers and reduce inequities. The paper argues that policy makers need to confront the role that private health insurance will play in their health systems and regulate the sector appropriately so that it serves public goals of universal coverage and equity.     

Do public clinic systems provide health care access for the urban poor? A cross-sectional survey

The purpose of this study was to describe the health care access provided to a low-income urban population by a system of county run public clinics. We conducted a cross-sectional interview survey of a random sample of subjects applying for or renewing eligibility to use the public system. The setting was a public system consisting of inner-city community health centers and hospital-based clinics delivering primary care. We interviewed 547 adult nonpregnant subjects; mean age was 41 years; 55% were women, 54% were Hispanic and 28% were non-Hispanic Blacks; 78% had household income below $15,000 per year, and 75% had no health insurance. Access to health care was measured in three ways: physician contact during year prior to survey; and answers to two separate questions concerning delaying needed medical care because it cost too much, and delaying care because it would take too long to be seen. Although 80% of subjects had seen a physician at least once, 46% had stayed away sometime during the year due to financial reasons and 24% had stayed away because of waiting time. Surprisingly, 35% reported private sector use. These rates varied significantly with insurance status. Hispanics had significantly less access by all three measures, even after multivariable adjustment for potential confounders such as sex, age, chronic disease and insurance status. We conclude that this study demonstrates financial barriers to access, while showing substantial private sector contact, even by low-income subjects already using the public sector.     

Health services financing in Greece: a role for private health insurance

Private health insurance can play a significant role in the financing and delivery of health services in relatively undeveloped health systems which suffer from limited public expenditures, resource shortages, and quality of care problems. Research results, however, indicate that private health insurance in Greece has not yet assumed that role. The rapid increase of private health insurance was the result of underfinancing by the public sector and restrictive policies for the private sector. The private sector, however, largely financed by private health insurance, found alternative investment and profit opportunities, which, unfortunately, did not improve health system microeconomic efficiency. In this paper we propose that a way of cooperation could exist between the public sector and private health insurance, which would improve public health services provision and the overall technical, allocative and dynamic efficiency of the health system.     

The impact of changes in private health expenditure on New Zealand households

The proportion of New Zealand's total health expenditure financed by the public sector has fallen from 87% in 1983/84 to 77% in 1997/98 in real per capita terms. In the paper, we firstly describe changes in private health expenditure in New Zealand and compare these changes with trends in private and public health expenditure in a number of OECD countries. Secondly, we find that in New Zealand, there have been increases in both out-of-pocket payments and membership of private health insurance funds over the period from 1983/84 to 1997/98. We analyze the relationship between out-of-pocket expenditure, insurance expenditure, and household income across income deciles and across time. We find that out-of-pocket payments are regressive but the regressivity did decline in 1993/94 in response to a government initiative to improve the targeting of government subsidies towards lower income households.     

Patient Satisfaction with Care in Programs for Low Income Individuals

Although a variety of public and private programs provide care for low-income individuals, little is known about patient satisfaction across these programs. The objective of this study was to examine patient satisfaction across a variety of health insurance programs. A survey was conducted of randomly selected adults in Kentucky who had an outpatient visit in the past 12 months (616 with private insurance, 683 Medicaid recipients, 287 in private sector charity program for uninsured indigents). Patient satisfaction with multiple dimensions of their most recent outpatient visit was assessed. All insurance groups were generally satisfied with the care received in their most recent visit. For all 8 dimensions of patient satisfaction, the private insurance group was significantly higher than the other groups. In a model controlling for standard demographic and health status variables, higher overall satisfaction with the visit was positively related to higher income and higher mental health functional status. The insurance category variable had no significant relationship to overall satisfaction with the visit. Although patients receiving care through health insurance programs for low-income individuals are generally satisfied with the services, there is an indication that low-income individuals, regardless of insurance type, are less satisfied with the care they receive.     

The effect of a private sector on the waiting time in national health service

This article examines the effect of a private sector on the waiting time associated with treatment in a public hospital. Without rationing of waiting-list admissions, a private sector is shown to result in a longer waiting time if the demand for a public treatment is sufficiently elastic with respect to the waiting time. When waiting-list admissions are rationed, the waiting time is shown to increase if the public sector consultants are permitted to work in the private sector in their spare time.     

The impact of the health-care sector on national economies in selected European countries

Policy-makers face pressures to improve lives and safeguard public finances sustainably. In this analysis, we estimate the economic importance of the health-care sector in 19 European national economies.We use input–output tables for the year 2010 and sectoral data to estimate a set of multipliers: simple, total, truncated, type I and type II multipliers for output, income, value-added, employment and import multiplier.The analysis reveals similarities in the economic importance of the health-care sector for the national economies of the observed countries. Results suggest prevailing positive effects on national economies (value-added, employment and household income) when spending on health-care sector products and services increases, especially in comparison to the effects of increases in spending in other sectors. The importance of the health-care sector is connected to countries’ levels of development; the benefits are especially promising in countries with lower levels of gross domestic product (GDP) per capita, where changes in the health-care sector have a larger impact on employment in the national economy than similar changes in more developed countries. The health-care sector therefore can play an important role as an instrument of economic policy.     

The impact of economic crisis on health-care consumption in Korea.

This study uses urban household income-expenditure survey data, national health insurance claims data, and public health centre surveys to examine the impact of economic crisis on the consumption of health services in Korea. The analysis shows that the health-care consumption of Korean households has been adversely affected by the recent economic crisis, as measured by amount of expenditure on health. Distributional implications for health sector use are also found. Whereas the use of medical services by upper income groups is only slightly affected by the economic crisis, lower income groups are spending relatively less on medical services. Of all households, unemployed households are hit hardest by the crisis. Analysis shows that for all households, the rate of expenditure decrease is relatively higher for drug expenditure than for expenditure on medical services. That is, facing declining income, people cut their spending in the area where the need is non-essential or less inevitable.     

Redistribution through social health insurance: evidence on citizen preferences

The extent of social health insurance (SHI) and supplementary private insurance is frequently analyzed in public choice. Most of these analyses build on the model developed by Gouveia (1997), who defines the extent of SHI as consequence of a choice by self-interested voters. In this model, an indicator reflecting individuals’ relative income position and relative risk of falling ill determines the voting decision. Up to now, no empirical evidence for this key assumption has been available. We test the effect of this indicator on individuals’ preferences for the extent of SHI in a setting with mandatory SHI that can be supplemented by private insurance. The data is based on a DCE conducted in the field with a representative sample of 1538 German citizens in 2012. Conditional logit and latent class models are used to analyze preference heterogeneity. Our findings strongly support the assumptions of the models. Individuals likely to benefit from public coverage show a positive marginal willingness to pay (MWTP) for both a shift away from other beneficiary groups toward the sick and an expansion of publicly financed resources, and the expected net payers have a negative MWTP and prefer lower levels of public coverage.     

Private expenditure and the role of private health insurance in Greece: status quo and future trends

The health care system in Greece is financed in almost equal proportions by public and private sources. Private expenditure, consists mostly of out-of-pocket and under-the-table payments. Such payments strongly suggest dissatisfaction with the public system, due to under financing during the last 25 years. This gap has been filled rapidly by the private sector. From this point of view, one might suggest that the flourishing development of private provision may lead in turn to a corresponding growth in private health insurance (PHI). This paper aims to examine the role of PHI in Greece, to identify the factors influencing its development, and to make some suggestions about future policies and trends. In the decade of 1985–1995 PHI show increasing activity, reflecting the intention of some citizens to seek health insurance solutions in the form of supplementary cover in order to ensure faster access, better quality of services, and increased consumer choice. The benefits include programs covering hospital expenses, cash benefits, outpatient care expenses, disability income insurance, as well as limited managed care programs. However, despite recent interest, PHI coverage remains low in Greece compared to other EU countries. Economic, social and cultural factors such as low average household income, high unemployment, obligatory and full coverage by social insurance, lead to reluctance to pay for second-tier insurance. Instead, there is a preference to pay a doctor or hospital directly even in the form of under-the-table payments (which are remarkably high in Greece), when the need arises. There are also factors endogenous to the PHI industry, related to market policies, low organisational capacity, cream skimming, and the absence of insurance products meeting consumer requirements, which explain the relatively low state of development of PHI in Greece.      

Unmet healthcare needs in Ireland: Analysis using the EU-SILC survey

The analysis used the 2013 Survey of Income and Living Conditions to examine the extent and causes of unmet need for healthcare services in Ireland. The analysis found that almost four per cent of participants reported an unmet need for medical care. Overall, lower income groups, those with poorer health status and those without free primary care and/or private insurance were more likely to report an unmet healthcare need. The impact of income on the likelihood of reporting an unmet need was particularly strong for those without free primary care and/or private insurance, suggesting a role for the health system in eradicating income based inequalities in unmet need. Factors associated with the healthcare system – cost and waiting lists – accounted for the majority of unmet needs. Those with largely free public healthcare entitlement were more likely than all other eligibility categories to report that their unmet need was due to waiting lists (rather than cost). While not possible to explicitly examine in this analysis, it is probable that unmet need due to cost is picking up on the relatively high out-of-pocket payments for primary care for those who must pay for GP visits; while unmet need due to waiting is identifying the relatively long waiting times within the acute hospital sector for those within the public system.     

Public health care and private insurance demand: The waiting time as a link

This paper analyzes the effect of waiting times in the Spanish public health system on the demand for private health insurance. Expected utility maximization determines whether or not individuals buy a private health insurance. The decision depends not only on consumer's covariates such as income, socio-demographic characteristics and health status, but also on the quality of the treatment by the public provider. We interpret waiting time as a qualitative attribute of the health care provision. The empirical analysis uses the Spanish Health Survey of 1993. We cope with the absence of income data by using the Spanish Family Budget Survey of 1990–91 as a complementary data set, following the Arellano–Meghir method [4]. Results indicate that a reduction in the waiting time lowers the probability of buying private health insurance. This suggests the existence of a crowd-out in the health care provision market. This revised version was published online in July 2006 with corrections to the Cover Date.     

Optimal public rationing and price response

We study optimal public health care rationing and private sector price responses. Consumers differ in their wealth and illness severity (defined as treatment cost). Due to a limited budget, some consumers must be rationed. Rationed consumers may purchase from a monopolistic private market. We consider two information regimes. In the first, the public supplier rations consumers according to their wealth information (means testing). In equilibrium, the public supplier must ration both rich and poor consumers. Rationing some poor consumers implements price reduction in the private market. In the second information regime, the public supplier rations consumers according to consumers' wealth and cost information. In equilibrium, consumers are allocated the good if and only if their costs are below a threshold (cost effectiveness). Rationing based on cost results in higher equilibrium consumer surplus than rationing based on wealth.     

Health care in China: the role of non-government providers

While China's health services are primarily financed by out-of-pocket spending (private financing), health care providers, especially the hospital industry, are still dominated by state ownership and government control (public provision). Even though the private sector plays an increasing role in the ambulatory sector, private services are not included in the social insurance benefit package, and thus, it primarily serves self-paying patients. The ambiguity of the government policy toward private provision stems from concerns that an increasing private sector would drive up costs and its services may be of questionable quality. This paper tries to gather evidence on the relative performance of private and public sector in China. Neither literature review nor our primary data analysis provides any support for the notion that the private sector charges a higher price and they serve primarily the better-off people. Quite on the contrary, available data seem to suggest that not only the private sector tends to serve disproportionately the low-middle income groups (this may well be due to its relative lower direct and indirect costs), consumer satisfaction also seems to be higher with regards to certain dimensions of the private than public sector.