Posted on August 9, 2007

WHO report on private insurance and cost sharing


What are the equity, efficiency, cost containment and choice implications of private health-care funding in western Europe?

By Sarah Thomson and Elias Mossialos (London School of Economics and Political Science)
World Health Organization
Health Evidence Network
July 2004

The issue

Over the last 20 years the level of private spending on health care has risen in many western European countries, leading to concern about its impact. The main channels of private spending are private health insurance policies and cost-sharing schemes in public health systems.


Evidence shows that private sources of health care funding are often regressive and present financial barriers to access. They contribute little to efforts to contain costs and may actually encourage cost inflation.

Private health insurance

The role of private insurance in western European health systems is largely determined by the extent of statutory health insurance. The evidence shows that:

  • Allowing people to opt out of statutory health insurance threatens its long-term financial stability.
  • Relying on complementary private health insurance to protect people against high levels of statutory user charges can increase inequities in access to care between those who can and cannot obtain such coverage.
  • Supplementary private insurance increases inequalities of access, particularly where there are no clear boundaries between public and private health care provision.
  • Tax subsidies for private health insurance are inefficient - because they distort signals about the real price of insurance and generate transaction costs - and inequitable, as they tend to benefit higher income groups.
  • Private health insurers lack efficiency incentives and tend to incur higher administrative costs than statutory health insurance. Publicly-funded systems are generally more successful in controlling cost inflation than mainly privately-funded systems.
  • Private health insurance can increase choice for some, but not to the extent that is often suggested, and under certain circumstances it may even restrict choice.

Cost sharing

Cost sharing is widely used in western European health systems to moderate demand and/or raise revenue. However, the theoretical case for cost sharing is weak, particularly when applied to health care arising from referral or prescription. The evidence shows that:

  • Cost sharing shifts costs to individuals and leads to significant reductions in the use of health care.
  • Cost sharing reduces the use of both appropriate and inappropriate health care, which has negative implications for equity and efficiency.
  • Cost sharing is not an effective means of containing costs.
  • Differential charges can be used to encourage more cost-effective patterns of health care use.
  • Because cost sharing creates financial barriers to access, it should be accompanied by mechanisms to protect heavy users of health care and lower income groups.
  • Exemption systems require administrative capacity, may generate significant transaction costs and may limit cost sharing’s ability to raise revenue.


By Don McCanne, MD

Even though released three years ago, this primer on private health care funding of Western European countries is especially informative for the dialogue on health care reform now taking place in the United States.

The report demonstrates that both private health insurance and patient cost sharing have a negative impact on equity, efficiency and affordable access to care. Some contend that we have to accept these perversities in order to contain health care costs. But one of the most important findings in this report is that neither is effective controlling cost inflation.

I omitted the policy recommendations that were presented in this report. They recommend greater regulation of the private insurance industry, and more careful design of cost sharing. Even though they (inadvertently?) presented a very compelling case for eliminating private insurance and cost sharing, being from the London School of Economics, it appears that they would try to make private funding work.

Regardless, this is an excellent primer on the flaws of financing health care through private insurance and cost sharing. It is well worth downloading and retaining as an important resource in our national dialogue on reform.

Just ignore their policy recommendations and substitute ours: Let’s design our national health insurance program so that it provides comprehensive benefits for everyone, funded equitably, while removing financial barriers to care. Let’s contain costs through patent-friendly supply side mechanisms. Then we could send the private insurers on their way, and they can take their perversities with them.