How is it that public and private insurance is used in the real-world? This question obviously varies across countries; however, there are general ways in which public and private health insurance systems work and we've put together a detailed guide for you below!
- In Australia, Ireland, Spain private insurance is a substitute for public insurance and used to be the case in the Netherlands before 2006, meaning the two are very rarely both used at the same time.
- Private insurance is bought on top of their public insurance for a broader range of treatments as well as shorter waiting times. (Examples, Austria, Finland & Denmark)
- A sole private insurance coverage where no automatic public insurance exists.
In the U.S, #2 and #3 are used. Working age individuals may be covered by private insurance (often through their employer) or by Medicaid (government program). The elderly are generally covered by the publicly-funded Medicare program, however, this does often require beneficiaries to make large co-payments. Private "Medigap" insurance does cover many of these co-payments.
Why do I need Private Insurance?
One reason stated by Boone et al (2018) shows that liquidity constraints can get in the way of many serious and cosmetic medical work leaving patients in a potentially difficult situation with financial institutions being wary of lending large sums to patients with a serious disease. Furthermore, to find insurance and the specific insurance package tailored to you and your needs is much more expensive once you're medical records state your illness.
First, CE scores do play a role in prioritizing which treatments should be insured. Because of limited budgets, money should be spent on treatments with a high health return per euro spent.Second, treatments with serious moral hazard issues should not be covered at all by (any) insurance. Third, relatively cheap treatments should not be covered by either basic or supplementary insurance. Fourth, basic insurance should cover treatments that are predominantly used by people who at the margin buy the most valuable treatments. The importance of disease (and treatment) prevalence to determine which treatments should be covered by basic insurance appears to be new. We derive sufficient conditions under which basic insurance should target treatments used especially by vulnerable people with high risk and low income. Finally, the welfare effects of government intervention in health insurance are magnitudes higher in an access to care model.
The paper is interesting and the key issue is to what extent are liquidity constraints binding in the real world. Some have called for health mortgages to allow liquidity constrained individuals to afford expensive treatments. Other individuals can receive loans from family or friends to afford needed treatments. However, with the cost of some novel treatments reaching six figures in cost per year, liquidity constraints are clearly an issue for many individuals.
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