Budget effects of health care 'vouchers'

Several proposals aim at developing private insurance markets as a substitute for government financing of health care spending. Reform proposals typically include the use of the fiscal system. We look at the effects of vouchers as an instrument for inducing individuals to opt out from public health insurance plans. We show that vouchers do lead individuals (mainly good health risks) to opt out from the social program. This is accompanied by an overall increase in Government spending due to transfers to be made, unless significant savings due to moral hazard control are available. This may run against the government's objective of public spending containment. The result is fairly general and does not depend on the existence of a solidarity component, as it has been commonly argued.