Optimal social health insurance with supplementary private insurance

This paper investigates the structure of a National Health Service in which there is compulsory social insurance covering a package of essentials, a given part of individuals' health expenditure, and supplementary private policy topping up the remaining services. The latter insurance contract provides for a co-payment by patients, limiting the so-called "third-party payer" effect. Thus, an individual's health expenditure is divided into three parts: the first covered by social insurance, the second by a private policy and the third out-of-pocket. Such mixed system design has received increasing attention in recent years and has been adopted by several industrialized countries. The conditions for optimal rates of social insurance coverage and of private coinsurance are analysed and discussed. The optimality requirements refer to efficiency as well as equity concerns. (C) 1999 Elsevier Science B.V. All rights reserved.