Health Policyin Economic Perspectives:

The Market for Health Insurance29 NOV 2007

서울대학교 의과대학

의료관리학 교실

김영치

Young Chi Kim, MD, PhD, MPH

Health Care Financing

Out-Of- Pocket

Private Health Insurance

Public Funding

- Tax financing

- Social health insurance

Types of Insurance

Indemnity Insurance Approach

- reimbursement for certain cost due to loss of income

- premium reflecting the expected loss

- community rating/ experience rating

Social Insurance Approach

- assistance programs associated with the welfare state

- individual rights and social responsibility

Private Insurance Demand

A Means of Protecting against Risk in an Uncertain World

The Theory of Risk and Insurance

Shifting the uncertainty of financial risk to others

Risk Aversion: marginal utility of income

Risk Pooling over a large group of people within the population

Expected Utility and Actual Utility:

중앙일보 08 NOV 2007

Theory of Risk and InsuranceShifting the Uncertainty of Financial risk to

others

Theory of Risk and InsuranceShifting the Uncertainty of Financial risk to

others

Berk and Monheit (Health Affairs, Mar/Apr 2001)

Total Utility of Income Curve

0

u2u1u0

w2w1w0

UtilityIncome

Income

Total Utility

The Choice of Insurance:“The Price Of Uncertainty”

Total Utility Expected Utility

Actual Utility

Income(w1,000,000)0

100U

45

96U

48 50

B

A

Factors affecting the Decision to Buy Insurance

Shape of the utility of income curve

Magnitude of loss: large range of uncertainty

Perceived cost of the risk

Price of the insurance and the level of income

Drivers of VHI Market Development in the Public System: “gaps in

coverage”

Scope of coverage - services: benefits covered by the public system

Depth of coverage - cost: the proportion of benefit cost met by the public system

System inclusiveness - people: the proportion of the population to which coverage is extended

Consumer satisfaction - expectations: perceptions about quality of care

Types of Voluntary Health Insurance

Complementary VHI- deficiencies in scope of coverage: dental care

- deficiencies in depth of coverage: user charge

Substitutive VHI- deficiencies in system inclusiveness: individuals with an annual income above a threshold

Supplementary VHI- low levels of consumer satisfaction: waiting times, unhappiness with the care environment

The Role of Private Health Insurance in Western European Health systems

Potential Advantages of VHIover Public Health Insurance

Increasing choice

Mobilizing resources for the development of infrastructure

Encouraging innovation

Enabling public resources to be targeted at poorer people

The Impact of Private Health Insurance

Equity in funding health care- Dominant or Compulsory: highly regressive

- Substitutive or supplementary: mildly progressive

Access to health care- some groups of people: barrier to access

- Complementary: financial barriers to access for people in lower income groups

- Supplementary: access inequalities by bypassing waiting lists in the public sectors

Cost containment

Efficiency

Choice

A Comparison of Administrative Costsamong Private and Public Insurers

Failures in Markets for Health Insurance

Information asymmetry between providers and consumers

Not independent risk of people becoming ill across the population

High or certain probability of a certain group of people

Difficult estimation of the probability of future claims

Adverse selection and risk selection

Moral hazard

The Impact of Adverse Selection on Risk Pooling

Income

UtilityExpected UtilityTotal Utility

u0

u1

B

FD

u2 AC

E

The Effect of Moral Hazard on Medical Care Demand

50 150 200 3000

MC = AC

CostD1

D2’D2 D3

’ D3

Units ofMedical Care

Regulatory Measures in Private Health Insurance Markets

Open enrollment

Community rating

Lifetime cover

Policies standardized in line with the coverage provided by statutory health insurance with a prescribed maximum premium rate

Participation in risk adjustment schemes

Tax Subsidies for Private Health Insurance

Regressive: increase the value of the subsidy to people in higher tax bands

Inefficient: distort signals about the real price of insurance and generate transaction costs

Expensive: unsuccessful in stimulating demand for private health insurance

Opting out and Substitutive VHI

Voluntary or Compulsory

Will ease pressure on public expenditure and increase health system efficiency by stimulating competition between statutory and private insurers

Threaten long-tern financial instability of statutory health insurance: The burden of raising revenue to fund statutory health insurance falls disproportionately on people with lower incomes and lower health status

OUT-OF-POCKET PAYMENTS

Direct Forms of Cost Sharing

Cost Sharing: Co-payment

COST SHARING

To moderate demand and/or raise revenue

Regressive and inequitable

Disproportionate impact on the vulnerable group of people: Exemption systems should be designed

Differential charges: pharmaceutical cost sharing

DUTCH HEALTH CARE SYSTEMON A PATH TO REGULATED COMPETITION

NETHERLANDS ANNE FRANK'S TREE

Total Population and GDP, 2003

Population(mid-year, thousands) GDP per capita USD ppp

US 290 810 37 658

UK 59 554 29 826

Canada 31 660 30 446

Germany 82 534 27 094

Netherlands 16 225 30 315

France 59 768 28 645

Japan 127 650 28 395

Korea 47 849 19 274

Infant Mortality and Life Expectancy

INCOME INEQUALITYGini Coefficient, 2000

0

5

10

15

20

25

30

35

40

US

UK

CAN

ADA

GER

MAN

YNE

THER

LAND

S

FRAN

CE

JAPA

N

KORE

A

OEC

D

Total Expenditure on Healthper capita, USD ppp

0

1000

2000

3000

4000

5000

6000

USA UKCA

NAD

AG

ERM

ANY

NETHE

RLAN

DSFR

ANCE

JAPA

NKO

REA

OEC

D

1980

1990

2000

2003

Public Expenditure on Healthper capita, USD ppp

0

500

1000

1500

2000

2500

3000

USA U

KC

ANAD

AG

ERM

ANY

NETH

ERLA

NDS

FRAN

CE

JAPA

NKO

REA

OEC

D

1980

1990

2000

2003

Total Expenditure on HealthShare of GDP

0

2

4

6

8

10

12

14

16

US

UK

CAN

AD

A

GERM

AN

Y

NETH

ERLAN

DS

FRAN

CE

JAPAN

KO

REA

OEC

D

1980

1990

2000

2003

Public Expenditure on HealthShare of GDP

012345

6789

10

US

UK

CANAD

A

GERM

ANY

NETH

ERLAND

S

FRANC

E

JAPAN

KO

REA

OEC

D

1980

1990

2000

2003

Trends in Health Care Expenditure

Sources of Health Care Financing

A national health insurance for “exceptional medical expenses”Compulsory sickness funds for persons with less than a certain income, and private, mostly voluntary health insurance

Voluntary supplementary health insurance

Health Insurance System

Exceptional Medicines Act(AWBZ)

Cover the exceptional medical expenses associated with long-term care or high-cost treatment

Responsible for around 40% of health expenditureCovered by employee’s payroll-deducted contributions and government funds

No contributions by those people without taxable income

Sickness Funds Act(ZFW)

Cover the normal medical expenses

Cover 63% of the population

Anyone whose salary below a ceiling of 32,600 euro

All social security recipients

Benefits extended to parents and kids

Employer/employee contributions, government grant and a private sector contribution

Private Health Insurance

Cover 30% of the population

Mostly voluntary

Standard policy provided under Health Insurance Access Act

Other forms of policies

Other Complementary Sources of Health Care Financing

Taxes (5.6%)

Out-of-pocket payments (5.8%)

Voluntary supplementary health insurance (3%): dental care, prostheses, hearing aids, etc.

Population Coverage and Expenditures in the Health Insurance System

Percentage of Main Sources of Finance

Three Domains of Health Care

1 immunization

2 vector control

3 treatment of TB

4 treatment ofminor trauma

5 obstetricalcare

6 surgery forcancer