Using Private Health Insurance to Reduce and Better Target Public Expenditures

by Paul Gertler, Roland Sturm

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Many developing country governments that have funded large, basically free public health care systems are facing financial crises and are looking for means to reduce the public's financial burden. One such approach includes an increased reliance on private health insurance and private health care. Using data from Jamaica, the authors estimate models of the demand for public and private medical care and simulate the likely impact of expanded health insurance among wage earners. Mandating employer-based insurance for wealthier individuals will induce insured individuals to opt out of the public sector in favor of the higher quality private sector, thereby reducing total public expenditures on health care. Moreover, this will improve the distributional goal of public health care, namely targeting public expenditures to the poor. The authors estimate that expanding private health insurance to the top half of the income distribution would result in savings of about 16 percent of public expenditures for curative services and about 14 percent of public expenditures for preventive services. In addition, it would increase the share of public expenditures captured by the poor by about 15 percent for preventive services and about 27 percent for curative services.

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