EUROPEAN PAPERS ON THE NEW WELFARE

Health Care System in the Industrialised Countries and the Role of Private Insurance

6. Private health insurance

Private health insurance (PHI) is an alternate and additional source of financing for health care expenditure and in some cases it is the primary source of coverage for particular groups in the population. The experiences of advanced economies have been markedly mixed. The role of PHI, its economic relevance and the services it can provide are closely linked with the health care guaranteed by the public health care system.
The importance of the insurance industry as a financial instrument has grown, as evident from the table below. As previously mentioned, development in some countries has been limited by government decisions to extend state intervention to ever larger groups of the population in their pursuit to provide a universal health-care model.

Table 5: Ratio of private health care insurance to total health care expenditure
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Source: OECD: Health data 2005. Data for Belgium, Norway and Sweden are not available.

PHI plays a vital role for top earners and for the well educated, and is offered to employees under company plans as an incentive to employee loyalty and/or to draw new recruits, factors which explain its great success in American companies.
The part PHI plays depends on the particular structure of the health care system. Insurance can be supplementary, complementary or act as a replacement:
• it is replacement where alternative state-run care is not provided;
• complementary where expenses or services not covered by the state are financed, for example, by co-payments adopted to make people more responsible in their use of health services;
• supplementary where it aims to broaden choice in health care services and/or speed access to such services.
In the first instance, demand for insurance is linked to the fact that some population groups do not make use of public health care (or do not intend to make use of it, for example those who opt out in Germany). Complementary coverage is for people who want to cover their own expenses through co-payment mechanisms. Supplementary coverage is for people who intend to use additional or alternative services to those offered by the public system where he/she does not consider them sufficient for his/her needs.
The contribution of insurance to health care expenditure is obviously greater in countries where private health care replaces state-run care. Certainly in the United States it contributes 36.7% of overall health care expenditure, in the Netherlands 17.2%, in Germany 8.8% and Switzerland 9%.
The subject of insurance in Switzerland is worth expanding. As previously mentioned, Swiss citizens are legally obliged to purchase a private insurance coverage. However, companies cannot make profits out of this activity and are monitored by the Federal Bureau. Insurers cannot deny private health care coverage to citizens requiring it. In order to facilitate the purchase of private insurance, the Federal Government puts pressure on companies to lower the prices of policies before they come out on the market, but if the price set is too high the Government may decide to subsidize the difference. All cantons enjoy some autonomy in setting the rules to subsidize premiums. For example, some cantons refund a part of the premium exceeding 10% of the income to citizens. Finally, it should be highlighted that compulsory insurance is based upon the solidarity principle: premiums paid are uniform and only vary according to regions and age (children/adults).
In Switzerland, public expenditure subsidizes nearly one third of insurance premiums paid by the citizens. Subsidies, their relevant amounts and beneficiaries are regulated by cantonal laws. Moreover, all cantons are legally obliged to cover 50% of hospital costs, as hospitals’ bed capacity must be higher than their economically viable bed capacity in order to ensure hospitalisation in the event of emergencies. This is considered to be one of the main causes for the strong increase in expenditure.
In France, it accounts for 12.7%, two thirds of which is covered by non-profit making health insurance funds and a third by insurance companies. In France it is common practice to refund out of pocket expenses directly. This type of coverage may be beneficial to the public system because by absorbing the expenses not covered by the state, it makes the implementation of reforms capping public expenditure easier.


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