PRIVATE health insurance is leading to the creation of a two-tier health system, the Organisation for Economic Co-operation and Development has warned.

A study of private health insurance by the Paris-based OECD found it creates marked differences in access to care.

"Private health insurance, which is predominantly purchased by higher-income groups, encourages a pro-rich distribution of physician use," it says.

The study found private health insurance in Australia gives people access to doctors and services that cannot be financed by Medicare. "Policy-makers have encouraged private health insurance as a means to offer a level of care or choice above that of the public system to those willing to pay."

The OECD says private insurance cuts waiting times for fund members by financing elective surgery in private hospitals.

The findings do not support claims made by the Melbourne Business School's Ian Harper, on behalf of the private health funds, that private insurance frees up resources in the public system.

"The cost-shifting potential of private health insurance is limited because the privately insured often continue to use publicly financed health services, even when these same services are covered by private health insurance," Professor Harper said.

This was partly because of differences between public and private hospitals, with public hospitals handling the more complex cases and emergency services.

The report says private health insurance in Australia has increased total demand for medical services, limiting the reduction in waiting times overall.

The study says it is not clear how much of the additional use of health services created by private insurance is the result of latent need, perhaps because of the ageing population, and how much is the result of "moral hazard".

Moral hazard is an insurance term meaning people are more likely to take risks and incur costs if they know they do not have to pay for them because they are covered.

The study says this is a particular issue in Australia because of "gap insurance" covering the difference between the scheduled fees met by Medicare and the fees charged by doctors in hospitals.

It notes that this type of cover has had an inflationary effect since being introduced in 2000.