Abstract

This paper argues that the potential gains from introducing equal per-capita health care premia are to be found primarily on the expenditure side, rather than the revenue side, of the market for health care insurance. Using simplified formulae for the German system of income taxation and health care finance, it is shown that equal per-capita premia offer no systematic advantage as an instrument of financing health care. If simultaneous changes in the tax system are made to compensate for the redistributive effects of the reform, then the efficiency gains derived from a switch to income-independ health care premia will also be lost. Alternatively, if one wants to change the progressiveness of the overall tax and social security system, this can equivalently be done through a reform of the tax system. Instead, it is argued that the advantage of equal per-capita premia lies in its potential to reduce health care expenditures, by way of facilitating the use of co-payment schemes which reduce the moral hazard problem in health care markets.