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

7. Taxation on private health insurance
The state regulates recourse to alternate sources of financing and in particular to private insurance through its fiscal policy. Several types of solutions have been adopted and have been changed over time by the health policies implemented by individual governments.
As a rule, tax incentives encourage people to acquire a health insurance policy because private insurance coverage lifts the burden on the system to some extent, thereby making up for the shortfalls in public resources. Moreover, private insurance provides appropriate solutions in an industry where the public sector struggles increasingly to satisfy such articulate and complex demand.
Tax allowances vary tremendously among advanced countries according to whether the buyer is an individual or a company. The majority of countries, including Italy, offer tax concessions to the individual but not to companies, while in Denmark and Spain they are only applicable to companies. The only countries where both types of concessions co-exist are Austria, Belgium and Ireland (Colombo and Tapay, 2004).
This very variegated context also includes cases where the limits on tax allowances are reduced. For example, in 1999, the Spanish government reduced tax allowances on all medical expenses, including insurance premiums, and at the same time it introduced tax allowances for companies which purchase insurance policies for their employees. In the United Kingdom in 1990, a tax allowance was introduced for people over sixty, but it was later repealed because fewer than 50,000 people applied for it in seven years.
Tax incentives are being driven down by the need for greater restraint in state finances, but also in some cases by the belief that private care must not be stimulated as this would shape the pricing process, generating additional transaction expenses, it would be a regressive tax, as the greater tax allowance would be for top earners in a higher tax bracket. Lastly, it has implications in terms of equity (Mosialos and Thomson 2002).

8. Relations with service providers

In providing financing for the system, PHI can select its health care providers and make them compete with each other, improving overall efficiency. Driven by the need to attract customers, insurance companies use a virtuous mechanism which offers the public better services and competitive prices; this makes them more dynamic, innovatory and sensitive to the needs of consumers compared to the public health care system which is rigidly bound to providing uniform services for the public.
The constraints on containing costs have, on the other hand, imposed limitations on the freedom to choose a care provider in countries where a range of health care services are privately-run. In some countries, it has been restricted to a network of pre-selected service providers and in some cases authorisation is required from the family doctor in order to access secondary care. In the United Kingdom and Spain, the insurance companies provide medical services directly through participating health care providers. In the UK, private policy holders are required to make a co-pay deductible when they use services outside these networks, which varies according to the gravity of the provision.
While recognising the positive effects generated by competition, some observers claim that the private health care system is overburdened by considerable administrative costs, thereby averting funds from the public health care system. In the United States, in fact, the sophisticated control instruments in place to monitor the suitability and quality of services provided have given rise to significant additional administration costs, one explanation for the high cost of the American health system (Jones, 2004).
Moreover, despite the number of visits and days of hospitalization being lower in the United States than in other countries, the use of expensive technology has driven expenditure up, clearly with negative consequences. Fee for service systems appear to prompt doctors to write avoidable prescriptions, while the great sensitiveness within the American judicial system to civil responsibility promote so-called ‘defensive medicine’, where care and prescriptions are overstated to minimise the risk of being accused of negligence (it is estimated that this accounts for about 3% of the total expenditure).

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