From Public to Private Health Insurance: What the Taxman Shouldn't do

Open Access

Abstract

It is the aim of several European governments to develop private insurance markets on the top of public health insurance plans. We look at the effects of tax exemptions as an instrument for inducing individuals to opt out. Tax exemptions on private insurance premiums are shown to be instruments having a substantial degree of uncertainty in their effects. On the other hand, tax waivers based on per capita medical spending to lead individuals (mainly good health risks) to opt out from the social program. This accompanied by an overall increase in state spending (and taxes) due to transfers which must be made, and by an income redistribution effect from bad risks to good risks. ; N/A