People in the UK who buy their own private health insurance are more likely to use healthcare services – visiting their GP or going to hospital – than those who receive insurance as a fringe benefit of their job. But on average, the health of private insurance purchasers is no worse: they are simply more likely to say that health is very important for them.
These are among the findings of research by Professor Pau Olivella and Marcos Vera-Hernandez, published in the March 2013 issue of the Economic Journal. Their study sheds light on whether having a voluntary private insurance sector leads to costs savings. It also has implications for the relative efficiency of the public and private sectors – and, since most of the hospitals covered by insurance are privately run, the much debated ''privatisation of healthcare''.
The researchers note that in many countries, including the UK, a fraction of the population enjoys public and private health insurance covering a similar portfolio of services; hence, they have duplicate coverage. In principle, this could translate into lower healthcare costs in the public health system.
But who are these individuals? Are they the ones that bring higher costs – or are they the ones that would not have used these services too much in any case? If the latter is true, the cost savings of having a voluntary private health insurance sector might have been exaggerated.
Analysis of data from the British Household Panel Survey shows that the individuals who purchase insurance on their own have a higher innate tendency to use healthcare services. For example, they are 50% more likely to be hospitalised than those who got insurance through their employer.
This finding opens the door to possible savings in the NHS. But does this higher innate tendency to use healthcare services truly bring higher costs? To answer this question, it is important to know where the tendency comes from: are these individuals in worse health?
The researchers'' empirical analysis is also informative on this question: they are not in worse health. Indeed, on average, the number of health problems faced by those who purchase private insurance is the same as for those who get insurance through the employer.
In fact, the higher tendency of insurance buyers to use healthcare services actually comes from their preferences for health. In particular, they are 7 percentage points more likely to state that health is very important for them. Therefore, it all boils down to another empirical question for further investigation: what are the true drivers of healthcare costs?
''Testing for Asymmetric Information in Private Health Insurance'' by Pau Olivella and Marcos Vera-Hernandez is published in the March 2013 issue of the Economic Journal. Pau Olivella is at the Universitat Autonoma de Barcelona. Marcos Vera-Hernandez is at University College London.