The influence of European Union (EU) law on private health insurance has not received as much attention as its impact on other parts of the health system (Hervey, 2007). Now is a good time to redress this relative neglect, as growing interest in private health insurance – in particular, its potential to relieve pressure on public budgets and enhance choice – raises questions about how best to create or expand and shape markets to achieve specific aims. There are no easy answers to these questions, but one thing seems clear: if policy makers intend to use private health insurance to achieve a particular objective, they must be able to direct market behaviour appropriately. Otherwise, the type of market most likely to emerge is one that simply provides access to acute care in the private sector for wealthier people. However, in newer markets lack of regulatory capacity often presents a barrier to effective policy direction (Thomson et al., 2007 forthcoming). In the established markets of the EU, many of the constraints facing policy makers come from single market legislation. Here we use the case of the Third Non-Life Insurance Directive to illustrate some of these constraints and to show how they can undermine the achievement of health policy goals such as financial protection, equity of access to health care and quality or efficiency in the organization, administration, and delivery of health services.