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
Functions the system performs
Stewardship
(oversight)
Creating resources
(investment
And training)
Financing
(collecting, pooling
And purchasing)
Objectives of the system
Responsiveness
(to non-medical
expectations)
Delivering services
(provision)
Health
Fair (financial)
contribution
Pooling to redistribute risk,
cross-subsidy for greater equity
Contribution
Pooling
across
equal
incomes
Subsidy
across
equal
risks
Low
Risk
High
Risk
Low
Income
High
Income
Net Transfer
Utilization
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.
An– example
of Tax-based
public health insurance is
the Canadian Medicare instituted by the Canada
• Health
Private
Act 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.
example of Social security schemes is French
• •An
Private
health insurance:
‘Securité Sociale’.
•Public
healthmandatory
insurance ishealth
usuallyinsurance.
mandatory. The
–
Private
mandate can apply to the entire population
(universal/national
public health
insurance)
– Private employment
group
health or to
groups within it (e.g., individuals with income below a
insurance.
threshold).
• Possible
exceptions
are portionshealth
of Medicare
– Private
community-rated
insurance.
coverage and Medicaid in the USA, where eligible
individuals
to applyhealth
to public
insurance agencies
– Privateneed
risk-rated
insurance.
to receive health cover.
Classification of health insurance
models
An example of private mandatory health insurance is:
• Basic
Public
health
social
health insurance:
insurance in Switzerland, which has
been mandated for the Swiss population with the 1996
– Tax-based
Health
Insurancepublic
Law. 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
An example
of private
employer group health
• Public
health
insurance:
insurance is: employer-based health insurance in the
United
States. public health insurance.
– Tax-based
– 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:
Examples
of private
community-rated
individual health
– Tax-based
public
health insurance.
insurance include: Voluntary health insurance in Ireland
– Social
security
schemes.
and
Australia,
and voluntary
health insurance in the
Netherlands provided under the WTZ Act, which is open to
• above-65
Privateindividuals
health insurance:
not eligible to the sickness fund
scheme for curative services (ZFW).
– 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:
An
examplesmandatory
of private risk-related
individual health
– Private
health insurance.
insurance is: Individual health insurance in the UK.
– Private employment group health
insurance.
– Private community-rated health insurance.
– Private risk-rated health insurance.
Defective Insurance Coverage
• Population Coverage
• Service Coverage
Un-insured
• Cost Coverage
– Lack- of- coverage for catastrophic expenses
– Insurance deductibles and co-payments
• Time Coverage
– Exclusion of coverage for preexisting illnesses
• Quality Coverage
Under-insured
– Services not covered
– Lack of coverage for long-term care
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
Health services
covered by
PHI scheme
Eligibility to public health insurance
Individuals have
public cover
Individuals do not
have public cover
PHI covers medically necessary curative
services typically covered under the public
system
Duplicate PHI
PHI covers cost sharing applicable to public
coverage systems
Complementary
Primary PHI:
- Substitute
- Principal
PHI covers top-up health services not
included in public systems or primary PHI
Supplementary
Functional classification of private
health insurance schemes
A
Health services
covered by
PHI scheme
Eligibility to public health insurance
Individuals have
public cover
Individuals do not
have public cover
PHI covers medically necessary curative
services typically covered under the public
system
Duplicate PHI
PHI covers cost sharing applicable to public
coverage systems
Complementary
Primary PHI:
- Substitute
- Principal
PHI covers top-up health services not
included in public systems or primary PHI
Supplementary
Functional classification of private
health insurance schemes
A
Health services
covered by
PHI scheme
Eligibility to public health insurance
Individuals have
public cover
Individuals do not
have public cover
PHI covers medically necessary curative
services typically covered under the public
system
Duplicate PHI
PHI covers cost sharing applicable to public
coverage systems
Complementary
Primary PHI:
- Substitute
- Principal
PHI covers top-up health services not
included in public systems or primary PHI
Supplementary
Functional classification of private
health insurance schemes
A
Health services
covered by
PHI scheme
Eligibility to public health insurance
Individuals have
public cover
Individuals do not
have public cover
PHI covers medically necessary curative
services typically covered under the public
system
Duplicate PHI
PHI covers cost sharing applicable to public
coverage systems
Complementary
Primary PHI:
- Substitute
- Principal
PHI covers top-up health services not
included in public systems or primary PHI
Supplementary
Functional classification of private
health insurance schemes
A
Health services
covered by
PHI scheme
Eligibility to public health insurance
Individuals have
public cover
Individuals do not
have public cover
PHI covers medically necessary curative
services typically covered under the public
system
Duplicate PHI
PHI covers cost sharing applicable to public
coverage systems
Complementary
Primary PHI:
- Substitute
- Principal
PHI covers top-up health services not
included in public systems or primary PHI
Supplementary
Cost Sharing Policies
• Service benefit policies use three costsharing 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
Patients Cost
Total Payment
Insurer Payment
Insurer
Payment
Stop-loss
Individual Payment
Coinsurance
Deductible
Medical Expenditure
Risk-sharing features of indemnity
insurance policies, 1991
Characteristic
Deductible
Coinsurance
rate
Stop loss
Maximum
lifetime
benefit individual
Average/percent
Individual
$205
Family
$475
<20 percent
13%
20 percent
78%
>20 percent
4%
<$500
21%
$500 - $1000
30%
$1000 - $2000
32%
>$2000
17%
<$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
Thank You !
Any Question ?