Summary |
In theory, the introduction of private health insurance can contribute to increasing the aggregate costs of health care in several different ways. Most of the arguments in favour of increasing health care costs due to private health insurance have to do with some disparity in the information available to parties involved in transactions in the health care and health insurance markets. In interactions between health care providers, such as doctors and patients, it is a given that the former have much better information about their patients’ health status and future course of treatment than the latter. This, together with the prospect of being ill and accompanying psychological costs and loss of earnings, makes the demand for health care fairly dependent on the course of treatment recommended by a physician. One consequence is that in a regime of pure indemnity insurance, providers have an incentive to provide more care than may be medically appropriate. For the same reason, the patient or, insurers for that matter, may be less willing to question the qualifications of the doctor as to his or her expertise.
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