Private Health Insurance in OECD Countries: a Policy Brief

10. How can policy makers use private health insurance to improve performance?

A system based on competing primary insurers can improve responsiveness and consumer choice, but at increased cost. Where private health insurance is the primary source of coverage for certain population groups, it may be particularly challenging to assure adequate access to coverage for vulnerable populations. Regulations to address market failures and promote equity have costs, in terms of government resources and diminished insurer flexibility to innovate.
Duplicate private health insurance markets can serve as a lever to improve systems’ responsiveness when policy makers consider it appropriate to ration public health expenditure according to individuals’ willingness to pay. Yet this generally results in differences in access to care and coverage according to insurance status. The degree of differential access that occurs, and the extent to which these access variations are considered equity challenges vary by country. In addition, duplicate private health insurance has not significantly reduced public health expenditure.
In the presence of significant cost sharing within public systems, complementary private health insurance helps ensure access to needed care. However, full private coverage of such cost sharing encourages insured individuals and providers to increase utilization. Unless some cost sharing is retained to encourage individual cost awareness, private health insurance hinders efforts to control public systems’ outlays.
Finally, supplementary coverage provides individuals with an opportunity to buy financial protection against risks associated with services not covered by public programmes. Removing public sector coverage of some health services helps reduce public expenditure. However when utilization of supplementary services is linked to publicly financed services, this increases public costs. As private health insurance markets generally have less comprehensive reach than does public coverage, decisions to de-list services need also to weigh the desired reductions in public sector cost against the equity implications of lack of public coverage.
Policy makers have a number of tools at their disposal to address these challenges.
• Access-related standards help to promote insurance coverage for high-risk persons and may be particularly useful in primary private health insurance markets. The need for these interventions often depends on the comprehensiveness of the benefits they apply to, and the extent to which the costs of any high-risk coverage are cross-subsidized by other private insurees or by other financing sources. If publicly funded systems provide adequate access to needed health services, policy makers may question the need for such interventions in their markets.
• Although private health insurance can create disparities in access to health care between those with and those without private cover, policy makers can intervene by regulating the roles that private insurance is allowed to have; regulating price differentials between publicly and privately financed medical practice; specifying providers’ obligation to public patients and monitoring compliance with those obligations.
• Maintaining at least some modest cost sharing in public systems that cannot be insured against helps to minimize undesired cost consequences of complementary private health insurance.
• Policy makers can maximize effective choice within private health insurance markets by fostering readily understood comparative information and product disclosure requirements. Some limits on benefit packages may be appropriate, particularly if products are sold to vulnerable population groups. Yet, benefit standardization reduces the insurers’ ability to innovate and tailor products to individuals’ demands.
• Policy makers can maximize cost shifting between the public and private sector by encouraging private insurees not to rely on public systems for privately covered services. They also need to assess whether subsidies towards private markets are self-financing and appropriate by weighing carefully their costs and benefits. Applying cost-control measures within the overall health system, including the private sector, improves the ability to control cost within private markets.
• Incentives or regulatory requirements might facilitate efforts to improve cost-effectiveness of care. Examples include removing insurers’ obligations to contract with all providers, or providing incentives for insurers to be involved in preventative care or care management. Improved consumer information could facilitate effective competition among insurers. Systems to compensate insurers with a worse risk structure can help reduce insurers’ incentives to select good risks, thus promoting equitable risk pooling. However, they can also reduce or remove incentives for insurers’ efficiency.

For more information
For more information on the OECD’s work on private health insurance, contact Francesca Colombo,, tel. (+33) 1 45249360.
More information on private health insurance is available at: , by clicking on ‘OECD Health Project’ and then on ‘OECD Study on Private Health Insurance’.
The OECD Policy Briefs are prepared by the Public Affairs Division, Public Affairs and Communications Directorate. They are published under the responsibility of the Secretary-General.
OECD publications can be securely purchased from the OECD Online Bookshop .

Private Health Insurance in OECD Countries, OECD, 2004. ISBN: 9264015639.

Towards High-Performing Health Systems, OECD, 2004. ISBN: 9264015558.

Towards High-Performing Health Systems — Policy Studies, OECD, 2004. ISBN: 9264015590.

Private Health Insurance in OECD Countries: the Benefits and Costs for Individuals and Health Systems, by Francesca Colombo and Nicole Tapay, OECD Health Working Papers No. 15. Free on Internet: .

Private Health Insurance in France, by Thomas C. Buchmueller and Agnes Couffinhal, OECD Health Working Papers No. 12, 2004. Free on Internet: .

The Slovak Insurance System and the Potential Role for Private Health Insurance. Policy Challenges, by Francesca Colombo and Nicole Tapay, OECD Health Working Papers No. 11, 2004. Free on Internet: .

Private Health Insurance in Ireland. A Case Study, by Francesca Colombo and Nicole Tapay, OECD Health Working Papers No. 10, 2004. Free on internet: .

Private Health Insurance in Australia. A Case Study, by Francesca Colombo and Nicole Tapay, OECD Health Working Papers No. 8, 2003. Free on Internet: .

Private Health Insurance in the Netherlands. A Case Study, by Nicole Tapay and Francesca Colombo, forthcoming.

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