Alternative Schemes for Health Care Expenditure: A Political Economy Study on OECD Countries

Abstract

Starting in the late 1880’s the OECD countries adopted several different mechanisms for subsidizing health care and broadening coverage. These include tax preferences, direct subsidies, mandated health insurance programs, and various government-financed single payer systems. In most cases, combinations of these systems have been used along with direct private purchases of health care. This dissertation attempts to explain why different systems and different system mixes have been adopted by democratic countries. To that end, a model of the collective decision making is developed using tools from public choice, political economy, and economics. The model is used to characterize quasi-constitutional choices of health care systems. For the most part, the analysis focuses on selection of the dominant part of a nation’s system. The model assumes that individuals' preferences include narrow self-interest and broader social values and xi ideology. When the economic interests dominate, equal and healthy societies are predicted to select systems in which private insurance dominates. In unequal and risky societies, voters are predicted to adopt a national health service. In intermediate cases, mandated insurance programs are predicted. When broader ideological interests prevail, more or less equal and healthy societies may prefer adopting a national health service. These predictions are tested using panel data on a sample of 21 OECD countries spanning from 1970 through 2007. The results show that income distributions, morbidity levels, and ideology all affect system choices.