Introduction
Private health insurance1 does not play a dominant role in funding health care in the European Union, as it does in the United States, Australia and Switzerland. For largely historical reasons, governments in European Union (EU) member states have aimed to preserve the principle of health care funded by the state or social insurance and made available to every citizen, regardless of ability to pay. This has led to the development of health care systems broadly characterized by high public expenditure, almost universal coverage, mandatory participation and the provision of comprehensive benefits. As a result, voluntary health insurance has had little scope to play anything other than a marginal role in funding health care in the EU.2
It is not our intention in this chapter to discuss the advantages and disadvant-ages of voluntary health insurance as a means of funding health care; these have been widely assessed elsewhere (see, for example, Chapter 5 and Barr 1998).
However, very few studies have considered the workings of the market for voluntary health insurance in the EU. Our aims here, therefore, are to examine the characteristics of voluntary health insurance3 and the nature of the market for voluntary health insurance in the EU. The framework we use is based on a simplified version of the structure–conduct–performance model of industrial analysis, although our use of the model does not necessarily imply a causal relationship between these three elements; rather, we use it as an analytical tool to examine the potential interaction between structure, conduct and performance in the market for voluntary health insurance (Mason 1939; Bain 1956). The chapter is structured as follows. After setting out the characteristics
of voluntary health insurance in the EU, we discuss the implications of public policy in the form of national tax incentives and EU regulation. We then assess the demand for voluntary health insurance in the EU, based on infor-mation regarding subscriber characteristics. The following three sections out-line market structure (the type of product on offer, the number and type of insurers in the market, barriers to entry, subscriber characteristics and infor-mation asymmetry), examine market conduct (defining benefits, setting pre-miums, the extent to which insurers cream-skim low-risk individuals, financial equalization between insurers and measures taken by insurers to address moral hazard) and assess market performance (levels of coverage, the price of premi-ums, health service costs, administrative costs, insurers’ profit ratios, impact on the health care system as a whole and equity implications). In the final section, we present our conclusions.
The characteristics of voluntary health insurance in the EU
A classification of types of voluntary health insurance
The literature on voluntary health insurance distinguishes between insurance that duplicates statutory insurance and insurance that constitutes the main means of protection for sections of the population (Couffinhal 1999). In the context of the EU, however, it may be more accurate to classify insurance according to whether it substitutes for the statutory health care system, provides comple-mentary coverage for services excluded or not fully covered by the state, or provides supplementary coverage for faster access and increased consumer choice. It should be noted that the distinction between complementary and supplementary voluntary health insurance is not always clear and there may be significant cross-over between them. Due to recent changes in EU regula-tion of the voluntary health insurance market (see later), some of the issues we raise regarding structure, conduct and performance will be more relevant to the market for complementary and supplementary voluntary health insur-ance, which is largely unregulated, than to the market for substitutive volunt-ary health insurance, in which greater government intervention is permitted.
Substitutive voluntary health insurance
Health care systems in the EU are mainly financed through taxation or con-tributions from employers and employees. This means that participation in the statutory health care system is usually mandatory. In Germany, the Nether-lands and Spain, however, certain groups of people are either not covered by the statutory health care system or allowed to opt out of it, leaving them free to purchase voluntary health insurance as a substitute for statutory protection.
Germany is unique both in restricting substitutive voluntary health insur-ance to high-income employees, self-employed people and civil servants and in prohibiting these individuals from returning to the statutory health care system once they have left it. Civil servants and self-employed people are
only eligible to remain under statutory protection if they have been members of the statutory health insurance scheme for a specific length of time. Indi-viduals earning above a certain amount can choose to opt out of the statutory health insurance scheme and purchase substitutive voluntary health insur-ance. Because German voluntary health insurers compete directly with the public sector, substitutive voluntary health insurance policies cover more than one type of insurance and may result in improved amenities, faster access and greater choice of provider.
The health care system in the Netherlands operates on three levels. The first level is a universal statutory scheme for exceptional medical expenses (known as AWBZ) that provides coverage in kind to all residents of the Netherlands for expensive, uninsurable, long-term care such as nursing care in hospitals (after the first 365 days) and nursing homes, mental health care and care for dis-abled people (Ministry of Health, Welfare and Sport 2000). This scheme is implemented by public health insurance funds and voluntary health insurers.
The second level of the health care system (known as ZFW) comes under the Health Insurance Act, which automatically insures resident employees up to the age of 65 earning less than a29,300, residents living on state benefits and some self-employed people. Those who are covered when they reach 65 years can remain covered under the ‘stay where you are’ principle, whereas those who are not can join it on a voluntary basis if their annual household income is below a certain level. High earners are not covered by the statutory health insurance scheme and can choose to take up substitutive voluntary health insurance, which most of them do.4 The ZFW covers the first year of hospital care, physician services, prescription drugs and some physiotherapy and basic dental care (again, in kind). Level three of the health care system consists of voluntary complementary and supplementary health insurance.
Spanish public-sector workers are allowed to opt out of the statutory health care system (run by the national social security agency INSALUD) and join a government-subsidized health insurance scheme (MUFACE), which also covers their dependants; about 85 per cent choose to do so (95 per cent in the Ministry of Health). Legislation in Portugal in 1990 gave individuals the right to opt out of the statutory system, but this aspect of the law has never been implemented (Dixon and Mossialos 2000). During the 1990s, the Italian gov-ernment also considered an opt-out clause.
Complementary voluntary health insurance
In contrast to substitutive voluntary health insurance, complementary volunt-ary health insurance provides full or partial cover for services that are excluded or not fully covered by the statutory health care system. It is avail-able to the whole population, albeit in varying forms, in every EU member state. Some insurers restrict benefits to hospital treatment, but where cover is available for non-hospital treatment, it may include a significant part of the costs of primary care practitioners, specialists, nursing staff, drugs, tests, medical appliances, transport costs, glasses, dental care, maternity care and alternative treatment. Levels of reimbursement vary from country to country and may also vary according to the insurance package chosen.
Complementary voluntary health insurance also provides cover for the reimbursement of co-payments in Belgium, Denmark (pharmaceuticals only), France (ambulatory care), Ireland (outpatient care) and Luxembourg (hospital co-payments). As a result of reform in Italy, Italian mutual associations will soon be allowed to cover co-payments and the costs of services excluded from the statutory benefit package funded by the national health service (SSN) (Taroni 2000). With the exception of France, the market for voluntary health insurance to cover co-payments is not substantial in the EU, probably because it is not particularly profitable.
Patients can purchase complementary voluntary health insurance to cover outpatient costs in Austria (in conjunction with a more comprehensive health insurance package), Belgium, France, Ireland, Italy, Portugal and Spain. Although statutory health care systems increasingly exclude dental care, the voluntary health insurance market for dental care in the EU is not as large as might be expected. The reasons for this are not clear. Some cover for dental care is available in Belgium (for self-employed people), Denmark, France, Luxembourg, Germany, the Netherlands and the United Kingdom.
Supplementary or choice-increasing voluntary health insurance
Supplementary voluntary health insurance increases consumer choice and access to different health services, traditionally guaranteeing superior accom-modation and amenities and, crucially, faster access to treatment, especially in areas of health care with long waiting lists, such as surgery. In some cases, supplementary voluntary health insurance increases the choice of provider and benefits. Supplementary voluntary health insurance is sometimes referred to as ‘double coverage’ and is especially prevalent in EU member states with national health service systems such as Greece, Italy, Portugal, Spain and the United Kingdom.
Levels of voluntary health insurance expenditure and coverage
Although the last 20 years have seen a general decline in public expenditure on health care in the EU, particularly in member states where public expenditure was high as a proportion of total spending on health care, this has not led to sustained growth in the demand for voluntary health insurance (see Table 6.1), partly because the state continues to provide comprehensive benefits (and participation is mandatory in most EU member states) and partly because governments have tended to rely on other methods of shifting health care costs onto consumers, such as user charges, rather than promoting and subsid-izing voluntary health insurance. Consequently, out-of-pocket payments make up the bulk of private expenditure on health care in all EU member states except France and the Netherlands (OECD 2000). In 1998, voluntary health insurance accounted for a very small fraction of private spending on health care in Greece, Italy and Portugal and for less than 25 per cent in Austria,
Table 6.1 Voluntary health insurance expenditure as a percentage of total expenditure on health in the EU, 1980–98
Country 1980 1985 1990 1995 1998
Austria 7.6 9.8 9.0 7.8 7.1
Belgium 0.8 1.2 1.6 1.9 2.0*
Denmark (not-for-profit) 0.8 0.8 1.3 1.2 1.5
Finland total 1.4 1.8 2.2 2.4 2.7
for-profit 0.8 1.2 1.7 2.0 2.2
not-for-profit 0.6 0.6 0.5 0.4 0.5
France total NA 5.8 11.2 11.7 12.2
for-profit NA NA 4.4 4.2 4.4
not-for-profit NA 5.8 6.8 7.5 7.8
Germany 5.9 6.5 7.2 6.7 6.9**
Greece NA NA 0.9 NA NA
Ireland (not-for-profit) NA NA NA NA 9.4
Italy 0.2 0.5 0.9 1.3 1.3**
Luxembourg NA 1.6 1.4 1.4 1.6**
(not-for-profit)
Netherlands total NA 11.2 12.1 NA 17.7
for-profit NA 11.2 12.1 NA 11.7
not-for-profit NA NA NA NA 6.0
Portugal NA 0.2 0.8 1.4 1.7**
Spain 3.2 3.7 3.7 5.2 1.5**
Sweden NA NA NA NA NA
UK 1.3 2.5 3.3 3.2 3.5
* 1996, ** 1997. NA = not available Source: OECD (2000)
Belgium, Denmark, Finland, Luxembourg, Spain and the United Kingdom (OECD 2000). Voluntary health insurance has a much bigger share of private expenditure on health care in EU member states offering substitutive volun-tary health insurance (29.9 per cent in Germany and 70 per cent in the Netherlands), and in France (51.7 per cent), where there is extensive coverage of co-payments (OECD 2000).
European Union data suggest that, even where governments have pursued a deliberate and explicit policy of encouraging people into the private sector, the results, in terms of voluntary health insurance coverage, have been mixed (see Table 6.2).5 For example, the relatively small size of voluntary health insurance markets in Denmark, Finland and Sweden is traditionally attributed to the generosity of public benefits, but recent increases in cost-sharing have not had much impact on voluntary health insurance coverage. Conversely, increases in cost-sharing have succeeded in stimulating growth in France, causing coverage for the reimbursement of co-payments to rise from 69 per cent of the population in 1980 to 85 per cent in 1999 (INSEE 2000). However, France is very much an outlier in this respect. Voluntary health insurance coverage remains low in southern member states such as Greece, in spite of
the fact that individuals in Greece often make high direct payments to pro-viders (Mossialos and Le Grand 1999). One reason for this may be a reluctance to pay a third party. When people are used to paying their doctor or hospital directly, the transferral of money to a third party may be seen as an unneces-sary erosion of the patient–doctor relationship. The implications of this cul-tural element for the expansion of voluntary health insurance in other countries with a high level of direct or unofficial payments, such as some central and eastern European states, should not be underestimated. In Germany, where voluntary health insurance coverage is not as high as might be expected, it is not clear whether this is because public expenditure is high (and statutory benefits are comprehensive) or because voluntary health insurance is expens-ive, offering relatively poor value for money. For more detailed information on levels of coverage and the price of premiums, see pp. 147–9.
Tax incentives and regulation of the market
Tax incentives to encourage the take-up of voluntary health insurance in the EU
National tax laws are a form of public policy that can provide consumers with significant incentives to take up voluntary health insurance, usually in the form of tax relief on premiums. Tax laws can also influence the behaviour of Table 6.2 Voluntary health insurance coverage in the EU in 1998
Country Per cent population covered
Austria 13 (hospital expenses)
21 (hospital cash payments)
Belgium 30
Denmark 28
Finland 33 (children)
10 (adults)
France 85 (co-payments)
20 (other types of voluntary health insurance)
Germany 8.9*
Greece 10
Ireland 42
Italy 5
Luxembourg 75 (active population)
Netherlands 28.9*
Portugal 10
Spain 17.6 (including 6.8 with substitutive VHI)
Sweden 0.5
UK 11.5
* Figures for Germany and the Netherlands are for substitutive voluntary health insurance.
Source: Mossialos and Le Grand (1999), updated using Health Care Systems in Transition country profiles from the European Observatory on Health Care Systems
insurers, either by making premiums deductible from corporate tax (an incent-ive) or by imposing a tax on premium income (a disincentincent-ive).
Tax relief for voluntary health insurance premiums does feature in the EU, although the last 10 years have seen efforts to reduce this type of incentive in many member states. Tax laws also vary considerably between member states.
For example, there is currently no tax relief for voluntary health insurance in Belgium, Denmark, Finland, France, Spain, Sweden and the United Kingdom and only very limited tax relief in Germany and the Netherlands, while in recent years the Austrian and Spanish governments have taken steps to cut tax relief (Bennett et al. 1993; Freire 1999). Ireland and Portugal are major exceptions to this trend.
Ireland still provides a substantial public subsidy to voluntary health insurance through generous tax relief, which costs the government a79 million a year at the standard rate of income tax of 27 per cent (equal to 2.5 per cent of public expenditure on health in 1997). Withdrawing this subsidy would increase the net cost of premiums by 32 per cent (Department of Health and Children 1999). Until 1999, tax relief in Portugal was capped at about US$329 for all types of insurance premiums, but since then the government has established a tax-deductible amount exclusively for voluntary health insurance premiums (Dixon and Mossialos 2000).
The industry argues that increased demand for voluntary health insurance will reduce demand for statutory health services and that tax incentives there-fore work in the public’s interest, but this argument could be challenged for several reasons (Davies 1999). Tax relief for voluntary health insurance is, in effect, a government subsidy to subscribers of voluntary health insurance, who tend to be high earners (see p. 136), and is regressive in terms of finance because the value of the relief is greater for those who have a higher marginal tax rate. It is administratively complex, which generates additional transac-tion costs. It can also distort price signals and may create opportunities for fraud and tax evasion.
Perhaps the most effective argument against tax relief is that it does not appear to be particularly successful in encouraging people to subscribe to voluntary health insurance. In the United Kingdom, for example, the incom-ing Labour government of 1997 abolished the tax relief on voluntary health insurance premiums for individuals aged 60 and over (introduced in 1990 by the Conservative government), because research showed that, in spite of annual public spending of £140 million on these incentives, the number of voluntary health insurance subscribers rose by only 50,000 in 7 years (an increase of 1.6 per cent) (Department of Health 2000). In spite of industry claims to the contrary, it is also unlikely that the cost of this subsidy to voluntary health insurance would be less than the National Health Service (NHS) expenditure saved. Recent estimates conclude that at least an additional 1.8 million individuals would have to take out voluntary health insurance (equivalent to a 28 per cent growth in coverage) for a subsidy to all adults, equal to the basic rate of income tax, to be self-financing (that is, for the NHS expenditure saved to equal the subsidy) (Emmerson et al. 2000). However, if the health care provided by the NHS actually costs less than the health care provided by voluntary health insurance (and Department of Health figures
suggest that NHS costs for treatment such as cataract extraction and hip re-placement are approximately a third less than the same treatment in the private sector), then an additional 3.1 million voluntary health insurance subscribers would be needed to make the tax subsidy self financing (Emmerson et al. 2001).
In some EU member states, tax laws are used to influence market structure by favouring certain types of insurers over others or certain types of contract over others. French, Belgian and Italian tax laws favour mutual associations over for-profit insurers, although in France’s case this may contravene EU regulation (European Commission 2000). Tax laws can also affect market struc-ture by encouraging the purchase of group rather than individual contracts and vice versa (Freire 1999; Datamonitor 2000).
The trend towards removing or reducing tax relief on voluntary health insurance premiums in the EU suggests that governments have found tax incentives for consumers to be expensive, regressive and largely unsuccessful in stimulating demand.
The EU regulatory framework
In recent years, the EU regulatory framework has become an increasingly important aspect of public policy towards voluntary health insurance. This is largely the result of European Commission directives leading to the creation of a single market for life and non-life insurance in the EU.
According to the European Commission, the ultimate objectives of a single market are to provide consumers with a greater choice of insurance products and to increase competition between insurance companies (European Com-mission 1997). The third non-life insurance directive (European ComCom-mission 1992), adopted by national law on 1 July 1994 (European Commission 1997), gives insurance companies the freedom to establish a branch or agency any-where in the EU, to sell their products without a branch presence and to compete on price, products and service. More importantly, it has abolished national controls on premium prices and prior notification of policy condi-tions. Under certain conditions, a country may invoke ‘the general good’ to justify national regulation, but in practice this only applies to substitutive voluntary health insurance; complementary and supplementary voluntary
According to the European Commission, the ultimate objectives of a single market are to provide consumers with a greater choice of insurance products and to increase competition between insurance companies (European Com-mission 1997). The third non-life insurance directive (European ComCom-mission 1992), adopted by national law on 1 July 1994 (European Commission 1997), gives insurance companies the freedom to establish a branch or agency any-where in the EU, to sell their products without a branch presence and to compete on price, products and service. More importantly, it has abolished national controls on premium prices and prior notification of policy condi-tions. Under certain conditions, a country may invoke ‘the general good’ to justify national regulation, but in practice this only applies to substitutive voluntary health insurance; complementary and supplementary voluntary