Elsevier

Health Policy

Volume 125, Issue 6, June 2021, Pages 685-692
Health Policy

Incentives for voluntary health insurance in a national health system: Evidence from Italy

https://doi.org/10.1016/j.healthpol.2021.03.007Get rights and content

Highlights

  • Voluntary health insurance is spreading in Italy.

  • Growth driven by introduction into occupational welfare and generous tax incentives.

  • Novel evidence on the costs of tax incentives to encourage VHI take-up.

  • The richest 20% of insured benefits from about 75% of tax reliefs.

  • In designing incentives, policy makers should account of inequalities in VHI coverage.

Abstract

Objectives

The paper evaluates the extent to which the government's policy to encourage the purchase of voluntary health insurance (VHI) may have led to income-related horizontal inequity in access to health care in a universal health care system (NHS).

Methods

Ad hoc tax return data for the universe of Italian taxpayers for years 2009-2016 are used to estimate the tax benefits granted to taxpayers who hold VHI, the redistributive impact, and the public budget effect. The income elasticity of tax benefits is estimated using tax return data and considering some taxpayers’ characteristics (income class, gender, age, and geographic area). Standard inequality indices are computed to assess income-related horizontal inequity in access to health care.

Results

Tax incentives, especially those granted to employer-paid health insurance, have a sizeable impact on tax revenue and introduce into the Italian NHS significant income-related horizontal and vertical inequity in access to health care. The results suggest a distributional profile of tax incentives that is highly concentrated in favor of wealthier taxpayers.

Conclusion

Our analysis adds novel evidence that may contribute to the current debate on whether and to what extent countries in which all citizens have access to free healthcare and equal standards of healthcare services should subsidize VHI, especially when the coverage doubles the healthcare services provided by universal public insurance. We show that VHI reduces tax revenues and introduces disparities among citizens in terms of access to healthcare services.

Introduction

Although universal healthcare coverage has been largely financed by states in European countries with tax-based national health services (NHS) (i.e., Nordic countries, Southern countries, and the UK), a growing number of individuals are covered by some form of voluntary health insurance (VHI) [1], [3], [20], [26], [27]. Most explanations for the increase in VHI focus on the factors related to the demand side of NHS, including long waiting lists, rising co-payments, perceptions of the public system's inadequacy, and changes in individual attitudes about supporting the redistributive role of public healthcare [5], [9], [18], [29], [36], [39].

Government policies may also have played a significant role in VHI growth in NHS European countries, especially in the initial wave of the insurance market's development [19], [21], [32], [34], [40]. With the goal of containing costs, governments have adopted policies to promote the purchase of private insurance, mainly through tax incentives. These policies could have a positive impact in terms of equity, as individuals enrolled in VHI reduce the pressure on the public health care sector by substituting public consumption with private consumption, thereby freeing up resources for the public health care of less well-off citizens [4], [38]. The choice to encourage VHI in NHS countries can also be explained by the desire to complement the NHS benefits package. Certain health services, such as dental care, cosmetic and thermal treatments, and alternative medicine, are usually excluded or not fully covered by statutory benefits packages, which increases out-of-pocket expenditure [26]. Thus, policies that promote VHI in NHS countries may reflect the need to ensure the long-term financial sustainability of NHS and to mitigate the burden of out-of-pocket spending [41].

The use of tax incentives is controversial, especially on equity grounds. These incentives may be regressive, as they are usually granted by reducing personal income tax liabilities, which are higher for those with higher incomes [1], [12], [26], [29]. By favouring wealthier individuals over poorer, these incentives may introduce disparities in access to healthcare services [2], [8], [10], [12], [15], [24]. In addition, tax incentives appear to be costly for the public budget, as there is no clear evidence that VHI holders opt out of the NHS and, therefore, that tax incentives are not self-financing [13], [23], [38].

In Italy, around 2 percent of the population was covered by VHI in 1999, but it increased to 12 percent in 2013 and reached 21 percent in 2017 [33]. Despite its dynamism, the VHI sector still plays a modest role in terms of healthcare funding. The share of current health expenditures financed by VHI rose from 2.2 percent in 2012 (53.1 euros per capita) to 2.6 percent in 2017 (66 euros per capita) [28], and recent estimates suggest that these figures would double in the next decade.

The growing spread of VHI in Italy has been driven mainly by the introduction of VHI into occupational welfare and by tax incentives to individuals and employers who purchase insurance policies for their employees [7], [24], [34]. Although health care is available to all citizens under the NHS, employer-paid private health insurance is frequently provided as an employee benefit and as an alternative to wage increases [17], [31]. Such seems to have been the case for Italy, where wages have seen a long stagnation period, and trade unions often exchanged more occupational welfare, particularly health care coverage, for less remuneration [11], [22].

The increasing popularity of VHI in the occupational welfare has been widely supported by Italian government policies through special tax treatments granted to employment-based insurance [24]. The Italian context is similar in many ways to other NHS countries in Europe, but Italy has distinctive features that make it an interesting case to study: the development of VHI seems to have been driven primarily by supply-side policies rather than by factors related to the demand side, and VHI often operates by duplicating the NHS rather than as a complement to it, weakening arguments in favour of public subsidies.

This paper evaluates the extent to which government policies to encourage the purchase of VHI may have led to income-related horizontal inequity in access to health care that is not desirable in a universal health care system like a NHS. The two primary goals of our analysis are to measure the impact of tax policy instruments on the public budget in terms of revenue losses and to determine whether tax incentives introduce income inequality among the insured (by favouring those with higher incomes) and disparities in access to healthcare services among the insured and between the insured and the uninsured. Clarifying these issues can inform policy debate. Although the issue of incentives is central to the Italian debate on the interaction between the public and private health sectors, there is scarce empirical evidence on the impact these incentives have on revenues lost by government or their redistributive effects [24], [35], [42] .

Section snippets

Incentives for VHI in the Italian NHS

The Italian NHS is a regionally organized healthcare system founded on the values of universal coverage, equality in access, and solidarity in financing. It guarantees uniform health care across the country based on a national statutory benefits package (the essential levels of care) and is largely free of charge at the point of service. It is financed primarily by national and regional taxes and supplemented by co-payments [14], [16], [37].

Until the late 1990s, the VHI market in Italy was

Data

We use ad hoc tax return data on the universe of Italian taxpayers for years 2009-2016, as provided by the Ministry of Economics and Finance (MEF). In addition to standard information on taxpayers’ gross income, tax deductions, income tax, tax credits, and after-tax income, the MEF provided us with data (not available to the public) related to the amount of contributions taxpayers and employers paid to Type-A and Type-B funds for which taxpayers claimed a tax relief. According to Italian

Results

Referring to years 2009 and 2016, Table 1 reports the tax relief obtained by taxpayers in terms of reduction in PIT and SSCs (only for those employees with health insurance coverage through their workplace), and by employers in terms of reduction in SSCs.

Tax relief on Type-A Funds reduced PIT revenue by 24.1 million euros in 2016, whereas the PIT and SCC revenue reduction for Type-B Funds ranged from 2,552 to 1,261 million euros, depending on the scenario considered. In the latter case, about a

Discussion

The tax incentives for IHF introduced into the Italian NHS some sources of horizontal inequality on citizens’ access to healthcare. The first source of horizontal inequality is based on personal characteristics. For example, some taxpayers with strong negotiating skills can get better access to care than others with the same ability to pay can.

In addition, some people are excluded altogether from this kind of tax benefit, such as those who do not work, those who work for companies that do not

Conclusion

The results of our analysis add novel evidence that may contribute to the debate on whether countries in which all citizens have access to free healthcare and equal standards of healthcare services should subsidize a VHI that doubles the coverage provided by universal public insurance [23], [27].

The development of VHI in Italy was driven mainly by IHF provided through collective agreements and/or employers’ unilateral decisions (Type-B Funds). In Italy's social context, tax relief granted to

Declaration of Competing Interest

None.

This research did not receive any specific grant from funding agencies in the public, commercial, or not-for-profit sectors.

Acknowledgements

We would like to thank Enrica Croda, Vincenzo Rebba, Francesca Zantomio and an anonymous referee for hepful suggestions.

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