To Exit or Not to Exit From the Public Provision of Private Goods: Does the Frame Matter?

Mixed public-private finance is widespread in health care systems internationally. In one variant of mixed finance, some countries (e.g., Germany) allow eligible beneficiaries to fully exit from the public (social insurance) system, purchase private insurance and be exempt from taxation to fund the public health system. Using a controlled laboratory environment we empirically investigate the predictions of a political economy model of mixed systems of public and private finance with two types of exit: universal exit, when all individuals can choose to exit the public system, and conditional exit, when only individuals with an income at or above a threshold income level can choose to exit. We run laboratory sessions with two different ‘frames’. In one, the private good that is provided publicly is framed neutrally; in ther other, the private good is identified as health care services. Our underlying model is framed neutrally. We do not introduce any conjectures about what ‘should’ happen if the private good is identified as a neutral good or as health care. We find that public funding in the public-only treatment is not different from the predicted funding, but that funding is lower when the health care frame is implemented. We find that when exit is conditional, the choice of frame is not important and both frames conform to the theory. We also find that with universal exit the health care frame leads to results regarding exit that are closer to the theoretical prediction than when the neutral frame is implemented. A conclusion from this investigation is that the use of the health care frame does not encourage more public provision of the publicly provided private good.