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Voluntary health insurance in the European Union

Elias Mossialos and Sarah M S Thomson

Executive summary


This study examines the role of voluntary health insurance in the European Union (EU). It considers the workings of the market for voluntary health insurance in the EU, the way in which recent changes in EU regulation affect this market and the implications of an unregulated market for EU consumers.


For largely historical reasons, public policy in the European Union has aimed to preserve the principle of health care funded by the state or social insurance and made available to all citizens, regardless of ability to pay. As a result, voluntary health insurance (VHI)1| does not play a dominant role in funding health care in the EU, as it does in countries such as the United States (US), Australia and Switzerland. Recently, however, debate focusing on the possibility of more explicit rationing of publicly funded health care has been accompanied, in some EU countries, by calls for greater reliance on private expenditure through VHI and strong support for expanding VHI as an alternative to publicly funded health care.

In 1994 the EU market for VHI was liberalised and deregulated to the extent that governments can no longer intervene, except where VHI acts as a substitute for publicly funded health care. But substitutive VHI is only available for high earners and some self employed people in the Netherlands and Germany and for civil servants in Spain. Most VHI in the EU is not substitutive; instead it provides complementary cover for services excluded or not fully covered by the state or supplementary cover for faster access and better amenities. Substantial deregulation may therefore have serious consequences for consumer protection in the EU.

Key findings

Our study, which is summarised below, is based on an extensive analysis of secondary sources. We would like to highlight three key findings:

  • VHI is poor value for money and the demand for VHI is declining in some EU countries : in the last ten years market growth has been caused by the rapidly rising cost of VHI premiums rather than by increased numbers of subscribers
  • the trend in the EU is to reduce or abolish tax relief for VHI because it is does not stimulate demand : governments find it to be an expensive and regressive subsidy to the well off
  • VHI subscribers in the EU do not have adequate information about the price, quality and conditions of VHI and may buy inappropriate policies : as a result of market deregulation insurers have no incentive to reduce confusion and increase transparency by introducing standardised terms and benefits packages

VHI in the EU is expensive and does not offer good value for money

The percentage of people with VHI coverage is low in many EU countries, largely because VHI in the EU is not good value for money compared to the public sector

  • in 1998 the average amount paid per person covered by VHI in the UK was £442 (for individual / employee paid VHI), whereas the average per capita NHS expenditure on health and community health services in England for individuals aged 16-64 years old was £365
  • in the UK the NHS provides better value for money compared to VHI because it offers comprehensive benefits, whereas PMI does not usually include cover for pre-existing or chronic conditions such as diabetes, multiple sclerosis and asthma, accident and emergency admission, normal pregnancy and childbirth, kidney dialysis, organ transplants, HIV/AIDS, outpatient drugs and dressings, infertility, preventive treatment, drug abuse, self inflicted injuries, cosmetic surgery, gender reassignment, mobility aids, experimental treatment and drugs, war risks and injuries arising from hazardous pursuits
  • the NHS figures include treatment for most of these conditions (some of which are expensive to treat), in addition to acute care, mental health services, and learning disability and other community health services

VHI in the EU is purchased by high earners and employers

  • most VHI subscribers in the EU are high earners
  • growth in the number of VHI subscribers has largely been the result of an increasing number of groups (employers) buying VHI; group premiums are much cheaper than individual premiums and their annual price increases are smaller

Because tax relief doesn't work, most governments have reduced or abolished it

  • there is currently no tax relief in Belgium, Denmark, Finland, France, Sweden and the UK and only very limited tax relief in Germany and the Netherlands
  • tax relief for VHI in Ireland costs the government around £62 million Irish pounds a year (the equivalent of 2.5% of public expenditure on health in 1997); removing this subsidy would increase the net cost of premiums by as much as 32%
  • if tax relief were available to all adults in the UK, it is estimated that at least an additional 1.8 million people would have to take up VHI (equivalent to a 28% growth in coverage) for this tax relief to be self financing
  • tax relief is administratively complex and generates additional transaction costs; it also distorts price signals and may create opportunities for fraud and tax evasion

EU consumers do not have adequate access to clear information

  • a recent report by the European Parliament concluded that consumers in the EU were unlikely to find policies easy to grasp and that variation between policies makes them difficult to compare in terms of value for money
  • the exclusions of VHI policies in the United Kingdom are numerous and difficult to judge; in 1999 the UK's Office of Fair Trading called for much greater clarity and accuracy in the information available to policy holders, describing the information provided by BUPA and PPP Healthcare as unsatisfactory
  • the industry has not succeeded in reducing subscriber confusion: a 50 year old man considering buying a policy from a leading UK insurer still has to choose between 90 different premium options ranging from £28.67 per month (£344.04 per year) to £363.82 per month (£4365.84 per year)

Cream skimming

Cream skimming (risk selection) is the process by which insurers seek to encourage custom from individuals with below average risk and discourage or refuse custom from individuals with above average risk. It can lead to gaps in coverage for vulnerable elderly people, which is inequitable, and may also lead to inefficiency.

  • in Ireland a comparison of the premiums of the Voluntary Health Insurance Board and BUPA Ireland show that the latter's premiums are 10% lower for subscribers under 19 years old, 4% lower for those aged 19 to 49 and 20% higher for those aged over 54; by attracting younger and healthier individuals, BUPA Ireland is competing by cream skimming rather than by offering better quality
  • cream skimming can be avoided by requiring financial equalisation between insurers, but this only occurs in Ireland and the Netherlands and there are growing concerns that this type of government intervention may infringe single market law

VHI may have a negative impact on the wider health care system

  • if doctors engage in both private and public practice they may spend more time with private patients, leading to shorter treatment time or delayed treatment for public patients; in the UK it was found that the 25% of specialists that did the most private work carried out less NHS work than their colleagues
  • some VHI policies reward subscribers with cash benefits if they choose to be treated in the public sector (paid for by the state) rather than the private sector
  • Spanish civil servants use VHI for minor health problems, but turn to the public sector for more serious problems, so the state pays twice for their health care
  • VHI may undermine attempts to improve efficiency in the health care system by responding to demand for non evidence based health care, eroding gatekeeping systems and negating the effect of co-payments introduced to reduce demand

VHI erodes equity

  • VHI may increase inequality in health care provision if it ensures faster access
  • VHI may have negative consequences for the health of poorer people; Spanish women with VHI have more cancer screening tests; there are social inequalities in the use of health services provided only partially by the government; visits to a dentist were more frequent among VHI subscribers.

EU insurers have high administrative costs

  • administrative costs were 4.2% of total NHS expenditure on hospital and community health services in England in 1995
  • in 1996, just after the Irish VHI market was liberalised, the administrative costs of the quasi public Voluntary Health Insurance Board were only 2% of premium income, whereas BUPA Ireland's were 12%; by 1999 administrative costs had risen for both insurers, but the Voluntary Health Insurance Board's were still considerably lower than BUPA Ireland's (4.7% compared to 14.2%)
  • in 1998 PPP Healthcare's administrative costs were even higher, at 16.9%
  • EU insurers' profit ratios are higher than those of US health maintenance organisations and have not declined significantly since deregulation in 1994.2

In future the EU market for VHI may be dominated by for profit insurers

Non profit mutual or provident associations dominate the VHI market in many EU countries and often benefit from preferential tax treatment. However, differential tax treatment may contravene EU regulation. If this is the case, in future the market may be dominated by for profit commercial companies.


1 We define VHI as health insurance that is taken up and paid for at the discretion of individuals or employers on behalf of individuals. It can be offered by public or quasi public bodies and by profit and non profit organisations. In every EU country the decision to purchase non statutory health insurance remains entirely voluntary. We define VHI as health insurance that is taken up and paid for at the discretion of individuals or employers on behalf of individuals. It can be offered by public or quasi public bodies and by profit and non profit organisations. In every EU country the decision to purchase non statutory health insurance remains entirely voluntary.

2 Many insures in the EU have non profit mutual or provident status but their income may (and generally does) still exceed expenditure.

24 May 2001