In this paper we investigate the economic rationales for the design of health care financing arrangements. We propose a categorization of financing schemes based on a distinction between basic and supplementary services and between mandatory and voluntary coverage. We argue that the most important economic arguments for governments to enforce a system of crosssubsidies that guarantees the financial access to a predefined set of basic services to high-risk or low-income individuals are the presence of externalities in health care services consumption; the individuals’ risk of becoming bad risks; and the moral hazard effects induced by crosssubsidization.
In addition, we argue that the rationale for mandatory coverage
is based on considerations of free riding behaviour, individuals’ lack of foresight and too high transaction costs of alternative ways to organize crosssubsidies. Finally, we will discuss the implications of our analysis for the design of health care financing arrangements.