The provision of public universal health insurance: impacts on private insurance, asset holdings and welfare

This paper aims to investigate impacts of public provision of universal health insurance (UHI) in an environment with household heterogeneity and financial market incompleteness. Various UHI polices with both distortionary (payroll-tax) and non-distortionary (lump-sum tax) financing methods are compared to address the trade-off between risk reduction and tax distortion as well as corresponding welfare implications. We undertake a dynamic equilibrium model with endogenous insurance choice and labor supply decisions to perform quantitative analyses. The results suggest that the UHI expenditure coverage rate would be too high in most OECD countries when the distortion effect is considered. We find a clear crowding out effect on asset holdings. Implications for private health insurance (PHI) purchases when UHI is introduced depend on the pricing and the design of coverage. We find the rich are sensitive to the price of PHI, and would prefer a supplemental plan when UHI is introduced.universal health insurance, complementary/supplemental health insurance