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The Multipillar System for Health Care Financing: Thirteen Good Reasons for Open Capitalisation Funds, Covering both Pension and Health Care Provisions

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  • Pammolli, Fabio
  • Salerno, Nicola

Abstract

CeRM recommendation for creating a new tool, the Open Welfare Funds: open funds based on real capitalisation of contributions, dedicated to both pension and health care provisions, and linked to collective insurance coverage against major health risks (first of all lack of self-sufficiency) Within welfare systems, health care is the expenditure that poses the most urgent problems for long term sustainability. Without policy interventions and structural reforms, its physiological tendency towards increases over Gdp will inevitably require access restrictions and cutting off of demand for services. This paper highlights the need to renew the current health care financing scheme. In the presence of ageing populations and rising incidences of health care expenditures over Gdp, this scheme cannot remain fully in charge of the working income of active people (pay-as-you-go), if we want to avoid depressive effects on employment, investments and productivity. Such effects, besides hampering economic growth, would have a negative impact on health care itself, with resources becoming more and more scarce with respect to needs. The financing scheme must become multipillar, with pay-as-you-go complemented by a private channel based on the real capitalisation of contributions. This channel would be capable of allocating savings, supporting productive investments and generating resources to be dedicated to health care. The best structuring and concrete functioning of the private pillar is less clear and under discussion. This position paper puts forward an operational proposal: the open capitalisation fund for welfare should offer both pension and health care provisions through real accumulation of contributions on individual accounts, and should be linked to collective insurance coverage against major risks and lack of self-sufficiency. This tool presents numerous positive characteristics, compared to the public pay-as-you-go monopillar as well as to a multipillar system in which the private component consists exclusively or mainly of insurance contracts. In fact, it is necessary to restrict the recourse to pure insurance coverage only to a limited group of treatments, because this kind of coverage is not equipped to deal with the dynamics of future expenses. As the difficulties American insurance companies are experiencing demonstrate, the pure insurance coverage ends up with the recurrence, in the private area, of the same defects as the pay-as-you-go in the public health care systems. Insurance pooling is not but a pay-as-you-go scheme applied over the group of insured members.

Suggested Citation

  • Pammolli, Fabio & Salerno, Nicola, 2011. "The Multipillar System for Health Care Financing: Thirteen Good Reasons for Open Capitalisation Funds, Covering both Pension and Health Care Provisions," MPRA Paper 36928, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:36928
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    File URL: https://mpra.ub.uni-muenchen.de/36928/1/MPRA_paper_36928.pdf
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    References listed on IDEAS

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    1. Dinar, Ariel & Wolf, Aaron, 1994. "International Markets for Water and the Potential for Regional Cooperation: Economic and Political Perspectives in the Western Middle East," Economic Development and Cultural Change, University of Chicago Press, vol. 43(1), pages 43-66, October.
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    3. Brian K. Edwards & Silvio J. Flaim & Richard E. Howitt, 1999. "Optimal Provision of Hydroelectric Power under Environmental and Regulatory Constraints," Land Economics, University of Wisconsin Press, vol. 75(2), pages 267-283.
    4. Chatterjee, Bishu & Howitt, Richard E. & Sexton, Richard J., 1998. "The Optimal Joint Provision of Water for Irrigation and Hydropower," Journal of Environmental Economics and Management, Elsevier, vol. 36(3), pages 295-313, November.
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    Cited by:

    1. Fabio Pammolli, 2013. "Demography, Sustainability, and Growth Notes on the future of the European "Social Market" Economy," Working Papers CERM 01-2013, Competitività, Regole, Mercati (CERM).

    More about this item

    Keywords

    public finances sustainability; pensions; health care provisions; long-term care; assistance for the elderly; pay-as-you-go; capitalization; monopillar; multipillar; bismark; beveridge; public; private; diversification of expenditures; diversification od sources of financing;

    JEL classification:

    • H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs
    • I00 - Health, Education, and Welfare - - General - - - General
    • H00 - Public Economics - - General - - - General

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