How Does Private Finance Affect Public Health Care Systems? Marshaling the Evidence from OECD Nations

Abstract

The impact of private finance on publicly funded health care systems depends on how the relationship between public and private finance is structured. This essay first reviews the experience in five nations that exemplify different ways of drawing the public/private boundary to address the particular questions raised by each model. This review is then used to interpret aggregate empirical analyses of the dynamic effects between public and private finance in OECD nations over time. Our findings suggest that while increases in the private share of health spending substitute in part for public finance (and vice versa), this is the result of a complex mix of factors having as much to do with cross-sectoral shifts as with deliberate policy decisions within sectors and that these effects are mediated by the different dynamics of distinctive national models. On balance, we argue that a resort to private finance is more likely to harm than to help publicly financed systems, although the effects will vary depending on the form of private finance.