Is There a Private-Public Insurance Trade-Off? Longitudinal and Micro-Evidence from the OECD and Beyond

Modern welfare states compete with the private insurance sector in providing economic security. This competition is most evident in the case of pensions competing with private life insurance and of public health insurance competing with private insurance providers. The received view of this public-private relationship is one of a trade-off or zero-sum game: political scientists describe how welfare retrenchment was pushed by new forms privatized welfare, whereas economists investigate the crowding-out of private through public welfare provision. We suggest a more nuanced view. Drawing on macro-data since 1950-2018, we show that the trade-off view only holds for special time periods (post-1980) and countries (highly insured countries) for pensions and health. Rather than a trade-off, complementary growth or low development of both public and private insurance characterize the situation in other times and countries. While these findings are not causal, we will use micro-data to suggest that voters with high coverage of private insurance tend to vote against more public welfare expansion and for more private incentives. In addition, we outline the role of parties and ideology in the transition from parallel growth to a zero-sum relationship in which either the crowding out of the market or marketization/privatization occurs.