No. 50: Voluntary Private Health Insurance Among the Over 50s in Europe

Paccagnella, O, Vincenzo R, and Weber, G. Health Econ. 22(3) (2012):289-315. doi:10.1002/hec.2800. Epub 2012 Feb 7.

This is CDM’s 50th e-round since 2008, when we first began writing them. It’s fitting that this e-round is about the effect of private health insurance on those over 50 years of age.


This study investigates the determinants of voluntary private health insurance (VPHI) among those aged 50+ in 11 European countries, and the effects of that insurance on out-of-pocket spending.

In most European countries, as in Canada, the population is protected from major financial shocks by the publicly-funded health care system. As in Canada, Europeans in some countries pay out-of-pocket (OOP) for care not covered by the public scheme, including drugs, dental, glasses, and alternative medicine. In Europe, diagnostic outpatient services are sometimes privately-funded; this is also the case in some Canadian provinces too, though with strong opposition from progressive groups. Unlike in Canada, however, Europeans may also pay for faster access to specialist outpatient and inpatient care.

Out-of-pocket payments in Europe may create a barrier to accessing care, raising the issue of inequity, particularly for the oldest segment of the population. To reduce their OOP expenditures, some individuals cover these costs by purchasing VPHI policies to “top up” the mandatory publicly-funded coverage. With rising health care costs due to aging and technology, some European governments have even elected to provide a range of tax incentives to encourage individuals and employers to purchase VPHI. The governments’ rationale is that increasing the demand for private insurance should mitigate the demand for expanding public insurance and mitigate the upward pressure on the public purse. The experience of some countries – Australia, UK, France – provides a cautionary tale about how ineffective this approach is on reducing public cost pressures or on improving access to care.

This study explores whether or not VPHI is a desirable tool for reducing OOP payments among Europeans over 50 years of age, and whether VPHI is really capable of insuring this demographic against health costs not publicly covered.


Using data from the 2004 Survey of Health, Ageing, and Retirement in Europe (SHARE), this study uses econometric modeling to estimate the effect of holding VPHI on OOP spending on health care. Included in the SHARE data set are Sweden, Denmark, Germany, The Netherlands, Belgium, France, Switzerland, Austria, Italy, Spain, and Greece.

Three types of insurance are considered, defined by the authors as follows (These terms have different meanings in other studies, as described in e-round #46.)

1. supplementary (for services not covered by public insurance);

2. complementary (for services covered by public insurance, but for which there is cost-sharing/user fees in the form of deductibles, co-payment, co-insurance, benefit ceilings);

3. duplicative (for services covered by the public plan, but purchased from private service providers to facilitate timely access to elective care).


The usual critique of econometric modeling studies is that the statistical analysis is capturing spurious correlation – something else is happening that is driving both the dependent and the explanatory variable in the model. Econometric studies, including this one, rest on theoretical assumptions underpinning the leap between the statistical results, and the researchers’ explanation of those results. In this study, however, the statistical associations make theoretical sense, and the correlations do not appear to be spurious.


The key estimation result of this study is that in only one country (The Netherlands), insured households have lower OOP spending than the rest of the population. In four other countries (Italy, Spain, Denmark, Austria), private insurance seems to create a strong incentive to spend more OOP than the rest of the population. In six countries (France, Switzerland, Greece, Germany, Sweden, and Belgium) the estimated effect is not significant, implying that for these countries, holding VPHI does not have a systematic effect on OOP spending.


Given that the purported role of VPHI is to reduce OOP spending, the finding that it does so in only one country (The Netherlands) is unexpected. This finding may be explained by the fact that in The Netherlands, VPHI is only supplementary (not duplicative), covering dental care and drugs. This supports the view that under circumstances in which it is only supplementary, VPHI is quite effective in reducing the burden of OOP spending.

The higher OOP spending in Italy, Spain, Denmark, and Austria, however, is evidence of a significant effect of VPHI in increasing, not decreasing, the level of OOP spending. This could be attributed to higher use of services, but could also be due to cost-sharing measures (e.g. co-payments, deductibles, benefit ceilings) adopted by insurers to counter the effects of moral hazard and/or their attempt to limit the effects of adverse risk selection by cream skimming less expensive enrollees so as to limit insurers’ financial liability. In Spain and Italy, VPHI is mainly duplicative or supplementary of public coverage, aimed at enhancing timely access to elective care. In Denmark, Austria, and Italy, VPHI is mainly complementary, meaning that its role is only to reimburse subscribers for co-payments and deductibles for services included in the public plan, such as for drugs, dental, and physiotherapy.

These findings are significant in terms of equity and health care policy. This analysis suggests that VPHI may increase inequities in access to health care, since it is mostly purchased by affluent and better-educated people. With the exception of The Netherlands, VPHI does not reduce OOP payments to cover health care costs excluded from public coverage. These inequities are even more pronounced in countries in which governments offer tax subsidies — mostly to wealthier people — for the purchase of VPHI.

Based on this study, we conclude that if private insurance is to be used at all, it seems better to promote supplementary VPHI, not duplicative or complementary, because it is more effective in reducing OOP spending.

A constitutional challenge to Medicare is now before the Supreme Court of British Columbia, with the trial set to begin in 2016. The outcome will determine whether or not OOP payment and private duplicative insurance should be allowed for medically necessary hospital and physician care, enabling faster access for those who can afford to pay OOP or through VPHI. This study suggests that allowing private duplicative insurance for this purpose would be unlikely to reduce OOP spending, and likely to increase inequitable access to care.

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