The Political Economy of Public-Private Mixed Health Insurance

Developing countries, particularly the fast-growing BRIC countries, are increasingly switching their focus from economic development to social welfare, of which public health insurance is an important component.

Currently, three major health care systems exist in OECD countries: National Health Service (NHS) in Nordic countries like Sweden and Norway and commonwealth countries including the United Kingdom, Canada, and Australia; Social Security system in continental Europe including France, Germany, Netherlands, and Austria; and Private Health Insurance in the United States. In addition, there are variations in financing arrangements and insurance coverage across countries; for example, prescription drugs are not covered in the public insurance plan in Canada though most other OECD countries offer such coverage; Germany allows wealthy citizens to opt out of public insurance while Netherlands requires high-income citizens to opt out of public insurance. In France, a substantial co-payment is required for access to public health insurance.

Among these health care systems, which one should be chosen by a developing country? To answer this question, one must first understand the economic and political implication of these health care systems. Public health insurance is not a pure economic choice; instead, it is highly redistributive and coercive and is a political decision. The rich or poor, healthy or sick, employed or unemployed face different cost and benefit from a public health insurance plan, depending on the nature of the plan. The recent Obama Care reform signifies the difficulty in balancing the divergent interests of citizens and interest groups.

This project will first evaluate the distribution of net benefits across income classes from four major health care financing methods including tax financed public health insurance, social security financed public health insurance, employer-provided private health insurance, and out-of-pocket payments for health care. The project will then investigate the political implication of these distributional impacts in a majority voting setting. Lastly, the project will analyze the distribution of overall net benefits under various combinations of financing methods and coverage. For example, what is the distributional impact of publicly insured hospital and physician services plus privately paid drug plans (like in Canada); and if a country proposes to use co-payment or user charge to reduce cost of a public health insurance plan, what is its potential political implication in an election?

The major methodology of this study will be simulation with a hypothetical group of citizens. The citizens are with various levels of income, various degrees of morbidity, and a distribution of employment and unemployment status. Expenditure-based fiscal incidence analysis and majority voting model are the major analysis methods, with the assistance of insurance theory.

The project will shed light on the future health care reforms in developed countries, especially on the public-private mix of long-term care insurance. The project is also of importance to developing countries that are searching for a public health insurance model to emulate.

Faculty Supervisor:

Haizhen Mou


Alejandra Lelo de Larrea Ibarra



Public administration



University of Saskatchewan



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