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Private health insurance – The MEI calls for a broader debate than what the government is suggesting

Montreal, March 3, 2006 – In an Economic Note published today, ahead of the public consultations announced last month by the minister of health, the Montreal Economic Institute (MEI) is issuing recommendations on the best way to regulate private health insurance.

Economist Norma Kozhaya, author of the document, observes first of all that most OECD countries exert little or no regulation over the benefits that private health insurance policies must provide, and no country limits coverage to a very small range of services as the Quebec government is suggesting in its consultation document.

Accordingly, Ms. Kozhaya hopes the consultations will help broaden the debate and provide for the eventual adoption of a duplicate private insurance model applying to all health care and not just knee, hip or cataract surgery. Duplicate insurance covers persons who retain access to the public system (and pay for it through their taxes) but who choose to be treated in a parallel private system.

Tax treatment of insurance premiums

The governments of countries with true duplicate private health insurance often offer tax or monetary incentives to their citizens, whether through tax deductions or refunds equal to part of their insurance costs. In Ireland, for example, premiums are partially deductible, while in Australia a 30% refund of premiums is provided to individual policyholders.

This would create costs for the Quebec government, but such costs may turn into gains since patients using private insurance to obtain health care in the private sector could save the government amounts far higher than any deductions.

The MEI highlights the example of Australia, where reimbursing 30% of premiums cost an estimated $2.2 billion, equal to 6% of public health care spending, while savings obtained by moving demand from the public to the private sector came to an estimated $3 billion.

Co-payment by patients

Ms. Kozhaya suggests that if private health insurance were broadened to cover all health care offered by the public system, such a system could include a co-payment portion in addition to variable premiums and deductibles, thereby giving insured persons an incentive to reduce the risks their incur.

“When costs are paid entirely by third parties (such as governments or insurance companies), patients are less likely to stay informed or to compare the costs of the various solutions that are available,” she wrote.

Titled Choosing a regulatory framework for private health insurance, this Economic Note is available on the Institute’s Website.

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Information and interview requests: Patrick Leblanc, Director of communications, Montreal Economic Institute, Tel.: (514) 273-0969 (office) / (514) 571-6400 (cell) / E-mail: pleblanc@iedm.org

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