Insurance Function in Health System Shahid Beheshti University of Medical Sciences School of Medical Education Strategic Policy Sessions: 28

Relations between functions and objectives of a health system Stewardship (oversight) Financing (collecting, pooling And purchasing) Creating resources (investment And training) Delivering services (provision) Responsiveness (to non-medical expectations) Fair (financial) contribution Health Functions the system performsObjectives of the system

Pooling to redistribute risk, cross-subsidy for greater equity Contribution Net Transfer Utilization Low Risk High Risk Pooling across equal incomes Subsidy across equal risks Low Income High Income

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 AEligibility 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 - Principal PHI covers cost sharing applicable to public coverage systems Complementary PHI covers top-up health services not included in public systems or primary PHI Supplementary

Functional classification of private health insurance schemes AEligibility 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 - Principal PHI covers cost sharing applicable to public coverage systems Complementary PHI covers top-up health services not included in public systems or primary PHI Supplementary

Functional classification of private health insurance schemes AEligibility 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 - Principal PHI covers cost sharing applicable to public coverage systems Complementary PHI covers top-up health services not included in public systems or primary PHI Supplementary

Functional classification of private health insurance schemes AEligibility 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 - Principal PHI covers cost sharing applicable to public coverage systems Complementary PHI covers top-up health services not included in public systems or primary PHI Supplementary

Functional classification of private health insurance schemes AEligibility 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 - Principal PHI covers cost sharing applicable to public coverage systems Complementary PHI covers top-up health services not included in public systems or primary PHI Supplementary

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 Average/percentCharacteristic $205Individual Deductible $475Family 13%<20 percent Coinsurance rate 78%20 percent 4%>20 percent 21%<$500 Stop loss 30%$500 - $ %$ $ %>$2000 9%<$250,000 Maximum lifetime benefit - individual 6%$250,000 - $1,000,000 85%>$1,000,000

Optimal insurance given moral hazard Optimal policyAuthor 58 percent coinsurance rateFeldstein and Friedman (1977) $200 deductible; 25 percent coinsurance rate Buchanan, Keeler et al. (1991) $200 to $300 deductible; 25 percent coinsurance rate; $1,000 stop loss (assumed) Newhouse et al. (1993) 25 percent coinsurance rate; >$25,000 stop loss Manning and Marquis (1996) Cost sharing declines from 27% at roughly $1,000 of spending to 5% above roughly $30,000 Blomqvist (1997)

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