Measuring the Effects of Removing Subsidies for Private Insurance on Public Expenditure for Health Care

Abstract

This paper investigates the effects of removing subsidies for private health insurance on public sector expenditure for hospital care. An econometric framework using simultaneous equation models is developed to analyze the interrelated decisions on the intensity and type of health care use and insurance. The results indicate that while privately insured individuals are more likely to seek hospital care as a private patient, they do not differ in the intensity of hospital care use compared with those without private insurance. The simulation results suggest that eliminating subsides could potentially yield substantial public sector savings.