Private insurance, public health

Financial, Fiscal and Enterprise Affairs Directorate (DAF)
Page 42 

David Rooney

Health is a public service almost by definition, though private insurance is expected to play a greater financing role. Finding the right balance between public and private health coverage and building the appropriate regulatory framework is an ongoing policy challenge.

The mere mention of the words "private health insurance" can stir up strong feelings across the political and ideological spectrum. Many people view it as an important aspect of consumer choice, offering the possibility of access to different types of providers or services in many countries. Private insurance can also help consumers meet the additional costs that may not be paid for by some public systems, so that individuals' use of health services is fully covered. However, there are concerns in government and among consumer, provider and other organisations, that a private market might threaten valued universal entitlements to health services. Some countries have had bad experiences with private insurance, others simply distrust the idea of the private market in the healthcare system.

Should it be so? Our role at OECD is not to come down on one side or another or promote a particular "ideal" role for private health insurance within a national health system. But we are ideally placed to collect and analyse the experience of many OECD member countries in this area, so that governments and other health providers can make informed policy choices. This is one of the key aims of this component of the OECD's health project: to evaluate and examine over the next two years and beyond, the role of private health insurance in OECD countries, as well as the interdependence and relationship between public and private health coverage. The outcome, we hope, will be useful and practical guidance for governments and policymakers as they try to promote an efficient, equitable and properly regulated health insurance market.

There are some "messages" that we can put forward. One broad, though essential one is that private health insurance does require regulations - and the project will try to identify those that appear to have been particularly useful.

The role of private health insurance varies significantly across countries and it is difficult to identify a single "trend" in this area. What seems certain is that private insurance will play at least some role in financing many countries' health systems in the years to come, including in countries where private health insurance is relatively rare.

Take Poland, for instance. It enacted legislation in 1999 permitting the entry of private health insurance into its health system in 2002; this legislation also included broader reforms. Yet, at the end of 2000, ongoing discussions and debates regarding health reforms and uncertainty regarding the desired role for such insurance delayed implementation.

In Turkey, the current system, based on a range of mostly public institutions, does not provide the entire population with health coverage and 30% of the population is uninsured. There is some interest in the potential role of private insurance to help fill that gap.

Policy debates continue strong even in countries where private insurance is more common. Australia, for instance, has a universal public insurance system and private insurance coverage is only permitted to cover services not funded by the public Medicare system. Nonetheless, a significant share of overall health financing - a third or so according to some estimates - in Australia comes from the private sector.

Since 1995, three major reforms have been implemented, addressing aspects of the private health insurance market: selective contracting (allowing health plans to enter into selective contracts with hospitals and physicians); government subsidies for health insurance through a 30% rebate for private health insurance and a move away from pure community rating - a regulatory scheme which prevents premiums from varying according to factors like age, gender or health status - to a modified system of community rating (sometimes referred to as "lifetime community rating") which provides incentives for purchasing private insurance at a younger age.

In the United States, private financing accounts for about 55% of health spending, according to recent government figures. One of several ongoing health policy discussions in the US involves how to incorporate the services of private health plans into Medicare, a federal health programme for those aged 65 and older, as well as for certain disabled individuals. Legislation enacted in 1997 enhanced the ability of Medicare beneficiaries to opt to receive their benefits through private health insurers; these plans sometimes offered additional benefits, such as additional prescription drug coverage.

However, this transition has caused some concern. For example, private insurers claim that reimbursement levels are insufficient. In fact, several have discontinued offering this type of cover. So, while private insurance is important within US healthcare, certain related policy issues continue to be debated by the state and federal governments.

Another country with recent changes affecting private health coverage is Switzerland. The enactment of compulsory basic insurance in 1996 resulted in changes in the voluntary supplemental coverage market as well. Basic cover can be offered by state-approved health funds or private insurers (although no private insurers are currently involved in operating this compulsory health insurance); in this case, health funds and private insurers are both subject to the Health Insurance Law and the supervision of the Federal Social Insurance Office. In addition, voluntary supplemental coverage can be offered by health funds or private insurers.

Unlike the situation before the recent reforms, the premiums for voluntary supplemental health insurance offered by the health funds are now calculated according to risks, using criteria such as age and gender (and already had been calculated in this manner by private insurers), in contrast to the premiums for basic compulsory insurance. These changes have raised concerns about how best to assure access to supplemental cover for all.

Supplementary insurance is currently not the subject of any targeted provisions of Swiss insurance law and proposals have been under discussion regarding gender-neutral premiums for voluntary supplemental insurance, as well as the calculation of these premiums based on the purchaser's age when the contract is first issued.

As OECD tries to draw the strands of these different experiences and discussions together, we see some difficult questions emerging. For instance, what are the best practices in this area and to what key social, economic, financial and regulatory principles should a public/private system of healthcare funding and management conform? What are the main advantages and drawbacks of private health insurance - with particular focus on financial security, social adequacy, individual choice, risks from both the financial and health management perspectives - and how can it best be used to complement public schemes?

A central challenge will be to examine the right balances that can be struck between public or private health insurance, mandatory and voluntary health insurance. From the point of view of equity, it would clearly be desirable to avoid the creation of a system with two classes of service. But from the point of view of efficiency, this balance also should promote an optimal use of resources without creating moral hazard incentives, such as any policies that might encourage persons to wait until they expect medical expenses before purchasing health insurance.

Apart from looking at policy incentives, policy also has to aim at appropriate regulatory frameworks for private health insurance, taking into account key concerns like competition, information access, consumer protection, portability - the ability to change health insurance policies or insurers without repeatedly incurring penalties - and so on.

The OECD's work in these areas is ongoing. It will involve the collective effort of all expertise available in our member countries to get it right.

References

 OECD, "Private Health Insurance in OECD Countries: Compilation of National Reports", (Note by the Secretariat) November 2000.

 Wilcox, S., "Promoting Private Health Insurance in Australia: Do Australia's latest health insurance reforms represent a policy in search of evidence?", Health Affairs, Vol. 20, 2001.

 National Health Expenditures (US), "The Nation's Health Care Dollar: 1999", Health Care Financing Administration (HCFA), Office of the Actuary, National Health Statistics Group, 1999.

©OECD Observer No 229, November 2001 




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