The redistributive effect of health care finance in twelve OECD countries

Abstract

The OECD countries finance their health care through a mixture of taxes, social insurance contributions, private insurance premiums and out-of-pocket payments. The various payment sources have very different implications for both vertical and horizontal equity and on redistributive effect which is a function of both. This paper presents results on the income redistribution consequences of the health care financing mixes adopted in twelve OECD countries by decomposing the overall income redistributive effect into a progressivity, horizontal inequity and reranking component. The general finding of this study is that the vertical effect is much more important than horizontal inequity and reranking in determining the overall redistributive effect but that their relative importance varies by source of payment. Public finance sources tend to have small positive redistributive effects and less differential treatment while private financing sources generally have (larger) negative redistributive effects which are to a substantial degree caused by differential treatment.