module, 6-15 november 2019 out-of-pocket voluntary ...€¦ · 1. direct payments = payments for...

Health Care Financingmodule, 6-15 November 2019

* Department of Health Care Management (WHO Collaborating Centre for Health Systems Research and Management), Technische Universität Berlin, Germany & European Observatory on Health Systems and Policies** School of Public Health, KNUST, Kumasi, Ghana

Out-of-pocketvoluntary community-based health insurance

Reinhard Busse*

Peter Agyei Bafour**

1. Direct payments = Payments for services that are not coveredby insurance

2. User charges: Payments for services covered by insurance

27 November 2019 Raising resources, pooling & allocation

Out-of-pocket payments

• The market assures an efficient allocation of resources

• …under the condition of a perfect market:– No externalities– No monopolies– No asymmetry of

information– Rational decisions by

consumers


Why is health care different?

QQ0

P0

P

demand

supply

Economic theory: the market

• No externalities?• No monopolies?• No asymmetry of information?• Rational decisions by consumers?

+ incidence of costs! we will come back to this later


Are the conditions fulfilled? No!

Third-party Payer

ProvidersPopulation

Collector of resources

Financing II:Resource pooling & allocation

Financing I:Raising resources/

funding

Financing III: Purchasing/ contracting/

paying providers

Access to services

Steward/ Regulator

Coverage:Who? What?How much?

57 November 2019 OOP --> voluntary --> community-based health insurance

VHI in system typology

Provision of services

Regulation

Risk-related premia& private insurers =

Voluntary Health Insurance system


Filling gaps through Voluntary Health Insurance (terminology used by the European Observatory)

Substitutive

Supplementary

Source: Sagan and Thomson (2016)

Complementary (services)

Complementary (user charges)


Voluntary health insurance plays a minor role in financing health care


There are very few large VHI marketsglobally

Sarah Thomson: VHI


There is only a slight relationship between(lower) OOP and(higher) VHI …

Sarah Thomson: VHI


… but more public spending does meanlower OOPs

Sarah Thomson: VHI

ProvidersPopulation

Private healthinsurer

Limited resource pooling (for companies, insured within one tariff etc.)


Typical private (indemnity) healthinsurance

Steward/ Regulator

(Health) risk-relatedpremium

(Voluntarily) insured part of population

Public-private mixFree choice

Very littlegovernment control

Reimbursementof costs

(no contracts)

Problems of health care financing• Uncertainty about the time of need• Uncertainty about the quantity of need• The magnitude of need can lead to catastrophic expenditures• Lack of access because of financial reasons


Why do we have health insurance?

• The market will offer health insurance under the followingconditions:– Risks have to be independent (everybody has his individual

probability of falling ill)– The risk has to be a risk and not certainty (p <1)– The risk has to be a risk and not uncertainty (it has to be

possible to estimate the risk)– There is no hidden information– There are no hidden actions


Economic theory: Conditions

• Independent probabilities?– Epidemics? Excluded from coverage?!

• Probability <1 ?– Chronically ill (probability=1) – The elderly (probability ~1)Incomplete coverage?!

• Known probability?- Possible for groups but difficult for individuals Often employer-based health insurance andmore expensive/difficult for individuals


Are the conditions fullfilled? I


Insurers are risk averse in many countries (and regulators allow them to)

in Europe

• No hidden information?– Individuals know if they are sick or not exclusion of pre-existing conditions adverse selection

• No hidden actions?– The risk of need and the quantity of need depends on

actions• Maternity excluded from coverage• Moral hazard, supplier induced demand cost explosion


Are the conditions fulfilled? II

Adverse selection

• Problem: Asymmetry of information– Individuals know if they are sick.– The insurance doesn‘t know.– Individuals buy insurance if the premium is below their

expected health care needs (+ their willingness to pay forreducing the risk).

7 November 2019 OOP --> voluntary --> community-based health insurance 17

Adverse selection

The death spiral(1) The sick buy insurance(2) Average health care costs increase(3) Costs of premiums increases(4) Fewer healthy people are willing to buy insurance (2)

Number of insured continues to decline



Adverse selection

Sick A bit sick Healthy

Stage 1 Stage 2 Stage 3

Problem with non-mandatory insurance

Measures to avoid adverse selection

• Option 1: Risk-related premiums. But:– High transaction costs checking for pre-existing

conditions, complicated contracts– Very high premiums for elderly and chronically ill de-facto excluded from voluntary insurance( have to obtain public coverage?)

• Option 2: Mandatory insurance


• Moral hazard: patients (consumers) use more care becausethey don‘t have to cover the costs

• Patients depend on doctors to provide information about their care needs

• Doctors determine the services needed (demanded) by patients they can induce demand.

• This is most problematic in countries with fee-for-service reimbursement and weak purchasing.


Moral hazard combined with supplierinduced demand

Response I: Introduction of usercharges reduces coverage

Response II: Utilisation reviews, changesin payment, integration with providers

ProvidersPopulation




Typical private (indemnity) healthinsurance

Steward/ Regulator



Public-private mixFree choice


Reimbursementof costs

(no contracts)

Fee-for-service payment

ProvidersPopulation




Private health insurance 2

Steward/ Regulator



Public-private mixNo/Limietd choice


HMO

Example for private (“voluntary“) healthinsurance: USA

• Incomplete coverage– Old insured by government (Medicare)– Chronically ill (e.g. need for Dialysis) often insured by

government (Medicare)– Poor insured by government (Medicaid, CHIP)

• Inequality of access– Individuals without employer plans (small companies, self-

employed) don’t find affordable coverage ( adverse selection)

• Cost explosion



Exceptionally high health expenditures in the USA related to VHI

Ghana

Burkina

Cote Ivoire

FR LuxUSA

40

45

50

55

60

65

70

75

80

85

90

0 1000 2000 3000 4000 5000 6000 7000 8000 9000

Life

exp

ecta

ncy

at b

irth,

tota

l (ye

ars)

Health expenditure per capita (PPP)

- High prices- Supplier induced

demand- High administrative

costs


Administrative costs of voluntaryinsurance are high

Sarah Thomson: VHI

Administrative costs

• Advertising• Assessment of risks• Contracts (thousands of different insurance packages and

contracts)• Estimation of costs and premiums• Reimbursement and vetting of claims• Utilisation reviews• Lawyers

7 November 2019 27OOP --> voluntary --> community-based health insurance

Problem Consequences Possible solutions?

Adverse selection

little risk pooling, no market, only some insured

education, subsidies, compulsion

Risk selection

no insurance for some groups

open enrolment, community rating

Moral hazard

overuse, oversupply cost sharing, ‘managed care/HMO’

Information asymmetry

no price competition standardised benefits

Regulatory responses

Source: adapted from Hsiao 1995

Develop mandatory (Social ) Health Insurance7 November 2019 OOP --> voluntary --> community-based health insurance 28

• Substitutive VHI: leads to riskselection ( healthier insure with private insurance), and has negativeconsequences for health system as awhole: unequal access, drawingresources away from public sector

• Complementary VHI (co-payments): usually better-off have insurance those who need protection are not protected + premiums are regressive

• Complementary VHI (services): countries rarely excludespecific services from coverage ( technically andpolitically difficult)


Problems with different types of VHI

Substitutive

Complementary (services)

Complementary (user charges)

Main advantages may develop with

relatively little government intervention

Pros and cons of VHI systems

Main disadvantages does not achieve significant

population coverage access and affordability

problems are inevitable difficult to regulate in a way

that it contributes to UHC make mandatory



Community-based health insurance (CBHI)

ProvidersPopulation

Community-basedhealth insurance

Limited resource pooling within the community


Community-based health insurance (CBHI) (type 1 and 2)

Steward/ Regulator

Per capita premium

Small part of (voluntarily insured)

population

Public (and sometimes also private) providersCoverage of basic services

Littlegovernment control

Type 1: Reimbursementof costs

Type 2: Health Centre

• The community is involved in driving its setup and in its management;

• Prepayment and pooling take place at the level of the community (e.g., geographical or occupational);

• Premiums are most often a flat rate (community-rating), independent of individual health risks;

• Entitlement to benefits is linked to making a contribution;• Affiliation is voluntary;• The CBHIs operate on a non-profit basis


CBHI: Basic characteristics


Community-based health insurance:A usefull intermediate step towards UHC?

Voluntary insurance―Adverse selection (sometimes mandatory to ensure entire

family to mitigate adverse selection) limited coverage―Community-rated premiums: not risk-related premiums –

not income-related premiums regressive financinginequity

Similar to private voluntary health insurance


Community-based health insurance: Or simply VHI on a small scale?

• Positive effects on utilisation of insured• Low enrolment: usually between 1% and 10% population

coverage (De Allegri et al. 2009)• Limited risk-pools• Limited capacity to raise resources• Limited benefits packages


Evidence on CBHI

Equity of financing?

• Vertical inequity amongst members– Community-rated premiums regressive

• Inequtiy betwen members and non-members– Members are often socio-economically advantaged. – Non-members remain unprotected

• Trade-off between equity and sustainability– Attracting the poor through exemptions, lower premiums Insufficient revenue generation.



Conclusion: CBHI

Positive - Improved access for members- Improved financial protection for members- Builds local (administrative/managerial) capacity- Includes informal sector- Very transparent (local control)

Negative - Low population coverage- Voluntary insurance adverse selection- Exclusion of the poor (high premiums) - Limited financial protection (only basic services –insufficient resources)- Risk of increasing inequities

Source: Ekman 2004

Step in the direction of UHC?


Design features to move to universal coverage

Develop mandatory (Social ) Health Insurance

module, 6-15 november 2019 out-of-pocket voluntary ...€¦ · 1. direct payments = payments for...

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