To eliminate selection bias and expand insurance coverage, governments can require insurers to pool risks across large numbers of people. To control costs, governments have a number of options: 1. Encourage prepayment of a fixed amount for each person, as is now done in private health maintenance organizations and in the British National Health Service; 2. Require insurers to jointly negotiate uniform fees with doctors and hospitals, as is done in Japan's social insurance system and Zimbabwe's private medical aid insurance system; or 3. Require insurers to set fixed payments for specified medical diagnoses, as in Brazil. A third approach, which has been tested on a limited scale in the USA, is "managed competition" between insurers to provide a specified package of health care for a fixed annual fee.
2. In unregulated private markets costs escalate without appreciable health gains to the patient. Governments have an important role to play in regulating privately provided health insurance, or in mandating alternatives such as social insurance, in order to ensure widespread coverage and hold down costs.
3. Some types of insurance schemes contribute to pushing up health care costs. This is particularly true of third-party systems and of systems that reimburse hospitals and physicians item by item for any and all services performed, In both the Republic of Korea, which relies on universal social insurance, and the USA, which uses mostly private insurance, health care already absorbs an unusually high share of GNP. During the 1980s, for example, health expenditure in Korea increased from 3.7 to almost 7% of GNP, in large part because of expansion of third-party insurance coverage combined with fee-for-service provider compensation.