What are the equity, efficiency, cost containment and choice implications of private health-care funding in western Europe?

Summary

The issue

Over the last 20 years the level of private spending on health care has risen in many western European countries, leading to concern about its impact. The main channels of private spending are private health insurance policies and cost-sharing schemes in public health systems.

Findings

Evidence shows that private sources of health care funding are often regressive and present financial barriers to access. They contribute little to efforts to contain costs and may actually encourage cost inflation.

Private health insurance

The role of private insurance in western European health systems is largely determined by the extent of statutory health insurance. The evidence shows that:

• Allowing people to opt out of statutory health insurance threatens its long-term financial stability.
• Relying on complementary private health insurance to protect people against high levels of statutory user charges can increase inequities in access to care between those who can and cannot obtain such coverage.
• Supplementary private insurance increases inequalities of access, particularly where there are no clear boundaries between public and private health care provision.
• Tax subsidies for private health insurance are inefficient – because they distort signals about the real price of insurance and generate transaction costs – and inequitable, as they tend to benefit higher income groups.
• Private health insurers lack efficiency incentives and tend to incur higher administrative costs than statutory health insurance. Publicly-funded systems are generally more successful in controlling cost inflation than mainly privately-funded systems.
• Private health insurance can increase choice for some, but not to the extent that is often suggested, and under certain circumstances it may even restrict choice.

Cost sharing

Cost sharing is widely used in western European health systems to moderate demand and/or raise revenue. However, the theoretical case for cost sharing is weak, particularly when applied to health care arising from referral or prescription. The evidence shows that:

• Cost sharing shifts costs to individuals and leads to significant reductions in the use of health care.
• Cost sharing reduces the use of both appropriate and inappropriate health care, which has negative implications for equity and efficiency.
• Cost sharing is not an effective means of containing costs.
• Differential charges can be used to encourage more cost-effective patterns of health care use.
• Because cost sharing creates financial barriers to access, it should be accompanied by mechanisms to protect heavy users of health care and lower income groups.
• Exemption systems require administrative capacity, may generate significant transaction costs and may limit cost sharing’s ability to raise revenue.

Policy considerations

For private health insurance

Private health insurance should be regulated to ensure access and consumer protection, according to the role it plays in a country and European Union laws. Private health insurers should be required to provide clear, standardized information about prices, coverage and policy conditions. Clear boundaries between the private and public health-care sectors to prevent distortion of public resource allocation and inequalities of access. Tax subsidies for private health insurance should be removed.

For cost sharing

Exemption systems should be designed from a clearly-defined notion of need and applied consistently. Differential charges can be used to encourage more cost-effective usage. Efforts to contain costs should focus on health care supply rather than demand.