This chapter discusses private health insurance, social health insurance, and tax-financed health care. These three health insurance systems differ in terms of three Cs: costs, coverage, and choice. Private health insurance is the most costly one to manage. Coverage is limited to people who have taken out insurance, but the choice to do so is of course voluntary. The contrasting system is taxation: it is cheap, it involves universal coverage, but it is compulsory. Social health insurance (SHI) lies between the two contrasting systems, but in practice is quite similar to tax-funded health care on two crucial issues. First, there is no link between size of the individual's contribution and their expected use of health care. Hence, the inefficiencies in the labour market associated with direct taxation would be the same, no matter whether some part of the compulsory taxation is ‘earmarked’ or not. Second, in high-income countries SHI has developed to universal coverage through top-up tax-financed contributions to the sickness funds from the state to cover non-member groups outside the workforce. Exercises and suggested readings are included at the end of the chapter.
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