Health Care Reform: Separating Insurance from Income Redistribution

Most systems of health care financing in EU member states currentlyinclude elements of income redistribution. The paper analyzesthe effects of shifting this kind of redistribution to the taxsystem and argues that this reform could create two types ofefficiency gains. On the expenditure side, it would facilitatethe adoption of more incentive-compatible insurance contracts,for example through the introduction of copayment schemes. Onthe revenue side, income redistribution through the general taxsystem is likely to imply a shadow price of public funds thatis lower than if redistribution is carried out through wage-basedinsurance contributions.