Social Security and Health Care Consumption: A Comparison of Alternative Systems
Private and public health insurance in the UK

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Abstract

This paper investigates the interaction between state health provision and private medical insurance in the UK. Regional data on private insurance and national health service waiting lists are used to assess whether higher levels of private insurance can affect performance of the public health sector.

Introduction

One of the central issues in health care provision is drawing the balance between public and private responsibility. For well-known reasons of aversion to inequality and market imperfections, there are good grounds for the state to be involved in the provision of health care. However, these arguments do not imply that private markets do not function at all. Here we focus on the UK experience where around 12% of households have members who purchase private insurance, either through their employers or individually. This raises a number of important issues. First, what motivates the decision to purchase private insurance? In an earlier paper (Besley et al., 1996b) we explored this question in detail using individual level data from the British Social Attitudes Survey (1983) (BSAS) and found that a key determinant of insurance demand appeared to be the length of long-term waiting lists for treatment. Waiting lists are also interesting since they have come increasingly, in the public consciousness, to symbolize the current state of NHS funding.1 Bosanquet (1988), for example, found that 87% of respondents regarded the length of long term waiting lists for non-urgent surgery in the NHS as unsatisfactory. This suggests an important interaction between public and private demands. The second issue concerns the political economy of resource allocation within the NHS. If the privately insured are more politically influential in lobbying for better services, then we might see that higher private insurance could feed back onto the performance of the public health sector, especially for those treatments which are offered by the private sector.

This paper makes an effort at taking seriously the idea that public and private insurance in the UK should be viewed as jointly determined. We explore this not as a point about the level of public funding, but about resource allocation within the National Health Service (NHS). Private insurance in the UK is mostly to cover certain kinds of elective surgery where waiting lists are notoriously long. The length of waiting lists is a reflection of resource allocation within the NHS and not a simple function of budgets. In trying to determine how health resources are allocated, there are margins of choice available within the NHS that can affect waiting lists.

The analysis exploits the regional structure of the NHS which during the period of our data was administered by 16 Regional Health Authorities responsible for resource allocation within a given area.2 We use these to give us both cross-sectional and time-series variation in NHS waiting lists. Hence, our evidence here comes from a panel of regional health authorities. Our data come from two sources. Five years of the British social attitudes (BSAS) survey, a nationally representative annual survey of some 3000 individuals, asks questions on private health insurance and other individual characteristics. The years are 1986, 1987, 1989, 1990 and 1991. These are matched with data about NHS regions from Regional Trends.

The remainder of the paper is organized as follows. Section 2provides a framework for our discussion of the interaction between state provision and private medical insurance. Some initial findings are presented in Section 3. Section 4concludes.

Section snippets

Framework

There is a sizeable theoretical literature that has worried about interactions between public and private provision of certain goods services, in particular health and education. Papers in this spirit include Besley and Coate (1991), Epple and Romano (1996), Fernandez and Rogerson (1997), Gouveia (1996) and Stiglitz (1974). The main idea is that individuals can either top-up their public sector allocation of health or education in the market, or else they can opt out of the public sector

Results

We begin by presenting OLS results for the equation laid out above. These confirm a positive association between waiting lists and private insurance, controlling for regional characteristics but statistical significance on this and other variables is disappointing.7

Instrumental

Concluding remarks

To a welfare economist the decision of how to balance private and public responsibility for provision of health care depends upon the usual desiderata of equity and efficiency. There is no place for resource allocation being endogenous. From a public choice perspective, resource allocation is influenced by wilful political acts. If more individuals choose to opt out of certain NHS services by taking out private insurance this can affect the way in which resources are allocated. This paper has

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