insurance function in health system shahid beheshti university of medical sciences school of medical...

Insurance Function in Health System

Shahid Beheshti University of Medical SciencesSchool of Medical EducationStrategic Policy Sessions: 28

Relations between functions and objectives of a health system

Stewardship(oversight)

Financing(collecting, poolingAnd purchasing)

Creating resources(investment

And training)

Delivering services(provision)

Responsiveness(to non-medical

expectations)

Fair (financial)contribution

Health

Functions the system performs Objectives of the system

Pooling to redistribute risk, cross-subsidy for greater equity

Contribution Net Transfer Utilization

LowRisk

HighRisk

Pooling across equal

incomes

Subsidy across equal risks

LowIncome

HighIncome

Classification of health insurance models

• Public health insurance:– Tax-based public health insurance.– Social security schemes.

• Private health insurance:– Private mandatory health insurance.– Private employment group health

insurance.– Private community-rated health insurance.– Private risk-rated health insurance.

Classification of health insurance models

• Public health insurance:– Tax-based public health insurance.– Social security schemes.

• Private health insurance:– Private mandatory health insurance.– Private employment group health

insurance.– Private community-rated health insurance.– Private risk-rated health insurance.

An example of Tax-based public health insurance is the Canadian Medicare instituted by the Canada Health Act

Classification of health insurance models

• Public health insurance:– Tax-based public health insurance.– Social security schemes.

• Private health insurance:– Private mandatory health insurance.– Private employment group health

insurance.– Private community-rated health insurance.– Private risk-rated health insurance.

•An example of Social security schemes is French ‘Securité Sociale’. •Public health insurance is usually mandatory. The mandate can apply to the entire population (universal/national public health insurance) or to groups within it (e.g., individuals with income below a threshold).• Possible exceptions are portions of Medicare coverage and Medicaid in the USA, where eligible individuals need to apply to public insurance agencies to receive health cover.

Classification of health insurance models

• Public health insurance:– Tax-based public health insurance.– Social security schemes.

• Private health insurance:– Private mandatory health insurance.– Private employment group health

insurance.– Private community-rated health insurance.– Private risk-rated health insurance.

An example of private mandatory health insurance is: Basic social health insurance in Switzerland, which has been mandated for the Swiss population with the 1996 Health Insurance Law.

Classification of health insurance models

• Public health insurance:– Tax-based public health insurance.– Social security schemes.

• Private health insurance:– Private mandatory health insurance.– Private employment group health

insurance.– Private community-rated health insurance.– Private risk-rated health insurance.

An example of private employer group health insurance is: employer-based health insurance in the United States.

Classification of health insurance models

• Public health insurance:– Tax-based public health insurance.– Social security schemes.

• Private health insurance:– Private mandatory health insurance.– Private employment group health

insurance.– Private community-rated health insurance.– Private risk-rated health insurance.

Examples of private community-rated individual health insurance include: Voluntary health insurance in Ireland and Australia, and voluntary health insurance in the Netherlands provided under the WTZ Act, which is open to above-65 individuals not eligible to the sickness fund scheme for curative services (ZFW).

Classification of health insurance models

• Public health insurance:– Tax-based public health insurance.– Social security schemes.

• Private health insurance:– Private mandatory health insurance.– Private employment group health

insurance.– Private community-rated health insurance.– Private risk-rated health insurance.

An examples of private risk-related individual health insurance is: Individual health insurance in the UK.

Defective Insurance Coverage

• Population Coverage• Service Coverage

– Services not covered– Lack of coverage for long-term care

• Cost Coverage– Lack- of- coverage for catastrophic expenses– Insurance deductibles and co-payments

• Time Coverage– Exclusion of coverage for preexisting illnesses

• Quality Coverage

Un-insured

Under-

insured

Non-financial barriers to health care

• Distances between patients and health care facilities

• Language and cultural incompatibilities between patients and health care givers

• Gender

• Race

Functional classification of private health insurance schemes

A Eligibility to public health insurance

Individuals have

public cover

Individuals do not

have public cover

Health services

covered by

PHI scheme

PHI covers medically necessary curative

services typically covered under the public

system

Duplicate PHI Primary PHI:

- Substitute

- PrincipalPHI covers cost sharing applicable to public

coverage systemsComplementary

PHI covers top-up health services not

included in public systems or primary PHISupplementary

Functional classification of private health insurance schemes

A Eligibility to public health insurance

Individuals have

public cover

Individuals do not

have public cover

Health services

covered by

PHI scheme

PHI covers medically necessary curative

services typically covered under the public

system

Duplicate PHI Primary PHI:

- Substitute

- PrincipalPHI covers cost sharing applicable to public

coverage systemsComplementary

PHI covers top-up health services not

included in public systems or primary PHISupplementary

Functional classification of private health insurance schemes

A Eligibility to public health insurance

Individuals have

public cover

Individuals do not

have public cover

Health services

covered by

PHI scheme

PHI covers medically necessary curative

services typically covered under the public

system

Duplicate PHI Primary PHI:

- Substitute

- PrincipalPHI covers cost sharing applicable to public

coverage systemsComplementary

PHI covers top-up health services not

included in public systems or primary PHISupplementary

Functional classification of private health insurance schemes

A Eligibility to public health insurance

Individuals have

public cover

Individuals do not

have public cover

Health services

covered by

PHI scheme

PHI covers medically necessary curative

services typically covered under the public

system

Duplicate PHI Primary PHI:

- Substitute

- PrincipalPHI covers cost sharing applicable to public

coverage systemsComplementary

PHI covers top-up health services not

included in public systems or primary PHISupplementary

Functional classification of private health insurance schemes

A Eligibility to public health insurance

Individuals have

public cover

Individuals do not

have public cover

Health services

covered by

PHI scheme

PHI covers medically necessary curative

services typically covered under the public

system

Duplicate PHI Primary PHI:

- Substitute

- PrincipalPHI covers cost sharing applicable to public

coverage systemsComplementary

PHI covers top-up health services not

included in public systems or primary PHISupplementary

Cost Sharing Policies

• Service benefit policies use three cost-sharing features, sometimes in concert: the deductible, the coinsurance rate, cost caps and the stop loss amount

Deductible

• The deductible is the amount that an individual must pay before the insurance company pays anything.

• The deductible is usually set annually; the typical deductible in 1991 was about $200 for an individual and $500 for a family.

• Consumers pay the full price for care consumed under the deductible.

Coinsurance rate

• The coinsurance rate is the percentage of the total bill above the deductible that a patient pays.

• Nearly all indemnity plans had a coinsurance rate of 20 percent.

Stop loss

• The coinsurance is paid until the patient reaches the stop loss - the maximum out-of-pocket payment by the person in a year.

• A typical stop loss in an indemnity policy was about $1,000 to $1,500 in a year.

Caps

• In addition to these features, many policies impose further cost sharing through caps on various types of expenditures.

• For example, policies may permit 8 mental health visits per year, or have a $1 million lifetime limit on overall medical expenditures.

• Such provisions discourage use

Cumulative Individual Payments

Total Payment

Patients Cost

Stop-loss

Deductible Medical Expenditure

Individual Payment

Insurer Payment

Insurer Payment

Coinsurance

Risk-sharing features of indemnity insurance policies, 1991

Characteristic Average/percent

DeductibleIndividual 205$

Family 475$

Coinsurance rate

<20 percent 13%

20 percent 78%

>20 percent 4%

Stop loss

<500$ 21%

500$ - 1000$ 30%

1000$ - 2000$ 32%

>2000$ 17%

Maximum lifetime benefit - individual

<250,000$ 9%

250,000$ - 1,000,000$ 6%

>1,000,000$ 85%

Optimal insurance given moral hazard

Author Optimal policy

Feldstein and Friedman (1977) 58 percent coinsurance rate

Buchanan, Keeler et al. (1991) 200$ deductible;25 percent coinsurance rate

Newhouse et al. (1993) 200$ to $300 deductible;25 percent coinsurance rate;

1,000$ stop loss (assumed)

Manning and Marquis (1996) 25 percent coinsurance rate;>25,000$ stop loss

Blomqvist (1997) Cost sharing declines from 27%at roughly $1,000 of spending to 5%above roughly $30,000

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