Volume 7, Issue Supplement

This contribution seeks to answer two questions, (1) What are the reasons for a demand for social health insurance (SHI)?, and (2) What are the limits to the growth of SHI? A review of the reasons for the existence of SHI reveals that while economists have emphasized the possible contribution of SHI to efficiency, the available evidence points to public choice reasons, which also seem to explain better the growth of SHI. Indeed, since private insurance redistributes as well (albeit governed by chance), it is tempting for politicians to use SHI for systematic redistribution (the extent of which cannot easily be detected by net payers). Turning to the supply of SHI, two dimensions are studied in some detail, viz. efforts at product innovation and at risk selection. Competing suppliers of SHI, while hampered by risk adjustment which sanctions innovators for attracting the young, are predicted to invest in innovation. A monopolistic public SHI scheme, by way of contrast, does not need to select risks and, on the other hand, it is predicted to refrain from product innovation. This is but one limit to the growth of SHI; the ultimate one is citizens’ lack of willingness to pay for its continuing expansion, about which some evidence for the case of Switzerland is presented.

The public good provided by public health care is not the maintenance of citizens’ health but rather the maintenance of the legal order and the citizens’ support for it. Several policy proposals for achieving the aim of supporting the rule of law by minimal means of public health care provision are explored. A system of assigning limited amounts of guaranteed health care that are provided in competitive processes below market clearing prices is suggested. We are seeking for minimum public health care under the constraint of maintaining the legal order rather than solving a maximization problem.

Over the past 50 years Germans have spent a rising share of their income on health and enjoyed substantially longer lives as a result. The rising health share can be explained by a standard economic model: As people get richer they purchase additional years of life and less additional consumption, provided that satiation occurs more rapidly in non-health consumption. The gains in life years increasingly occur late in the lifespan. As a result the incremental cost-benefit ratio of health care deteriorates: marginal costs increase as the marginal productivity of medical inputs decreases in old age while marginal benefits decrease due to a rising hazard rate. On average, medical progress is worth it. Future income growth will further increase the health share, while population ageing will only marginally affect health care expenditures.

In many countries, competition among health plans or sickness funds raises issues of risk selection. Funds may discourage or encourage potential enrollees from joining, and these actions may have efficiency or fairness implications. This article reviews the experience in the U.S., and comments on the evidence for risk selection in Germany. There is little evidence that risk selection causes efficiency problems in Germany, but risk selection does lead to an inequality in contribution rates. A simple approach to equalizing contribution rates that does not involve risk adjustment is presented and discussed.

There is increasing concern that equity in health and health care in Europe may suffer as a result of the expansion of the European Union and the ageing of its populations. This article reviews the findings of the ‘‘ECuity III’’ project: a network of European health economists who have investigated socioeconomic inequalities in health and health care. In order to help inform the policy debate about how to secure health equity in our ageing European societies, the project pays particular attention to the key decisions about income, health and health care in age groups around the retirement age, as these prove to be crucial for a better understanding of cross-country differences in inequalities.

The usual view on the division of labour between the philosophy of science and economics is mistaken. The concentration on formal problems in both sciences has concealed the convergence of their problems. This convergence has been revealed by the institutional change in both sciences. The common problems of these sciences are related to the explanation of phenomena in the realm of knowledge. For this assumptions are needed about problem-solving behavior of competing individuals. The institutional theory of the progress of knowledge by Karl Popper refers to this competition. One of the rewards desired in this competiton is the acknowledgment of the value of the solutions offered by the competitors. These solutions are goods which are evaluated by rules of method. The competition in science can be seen as a competition for status in the framework of incentive-compatible rules in which bilateral exchange plays no role. The question to what extent the institutional arrangements in the realm of science in the western world are adequate for the progress of knowledge may have different answers for different countries.