Chapter 0 Introduction to Health and Care

Question 1

Broadly speaking:

What is “health” ? (2)

What is the purpose of insurance? (2)

How do we marry the above two concepts to understand the purpose of ‘health insurance’? (3)

Answer 1

• Health refers to
  
  • a state of being where one is free from illness…
  • …in relation to one’s mental and physical wellbeing
• The purpose of insurance is, broadly speaking,
  
  • prepaying and pooling of funds…
  • …to mitigate losses arising from a contigent even
• Health insurance is purposeful because
  
  • no-one plans to get sick or hurt (mentally or physically), but in the event that this happens, medical care is needed
  • health insurance covers the costs associated with this, and offers many other important benefits
  • health insurance protects against unexpectd, high medical costs

Question 2

What are some consumer needs which are met by the use of health insurance?

(8)

Answer 2

1. Medical expenses
2. Loss of income
   
   1. Directly
   2. Ability to earn income
   3. Other members of household
3. Household expenses
4. Cost of lifestyle changes
5. Debt

Question 3

List 4 important pillars/activities involved in a well-functioning health system

(4)

Answer 3

1. Collection of funds
2. Pooling of resources
3. Purchasing of goods
4. Deliver of services

Question 4

Health systems, collecting of funds:

Give examples of who might ‘pay’ (10)

Answer 4

1. Households
2. Employers
3. Donors
4. The fiscus
5. The poor
6. The elderly
7. The unemployed
8. Payment may determined by
   
   1. one’s ability to pay
   2. one’s willingness to pay

Question 5

Health systems, collecting of funds:

How might funds be collected? (6)

Answer 5

1. General taxes imposed by the State
   
   1. VAT
   2. Income taxes
   3. Corporate taxes
2. Earmaked taxes, taxes earmarked specifically for provision of healthcare
3. Premiums

Question 6

Health systems, collecting of funds:

What kind of cross subsidies might exist in terms of collecting funds for provision of healthcare? (7)

Answer 6

1. Social solidarity
2. Subsidies varying in their extent
   
   1. min payment/funding requirement,
   2. max payment/funding which may be imposed,
   3. sliding scale for funding depending on other factors
3. Income cross subsidies
4. Cross subsidies between generations (younger subsiding the older)

Question 7

Health systems, resources pooling:

What different aspects/characteristics should be considered regarding pooling of funds for health systems?

(4)

Answer 7

1. Types of pools/who pools funds together
2. Influence of pool size
3. Issues related to having multiple pools
4. Mutliple tiers created due to pooling

Question 8

Health systems, resources pooling:

What types of ‘resource pooling’ might be found in health systems…i.e. who might pool resources/funds? (6)

Answer 8

1. State pooled resources
2. Mutuals
3. Insurers
4. Individuals
5. Donors
6. Employers

Question 9

Health systems, resources pooling:

Give examples of factors to be considered due to having multiple pools within a health system (3)

Answer 9

• Multiple pools (vs single pools) leads to factors such as
  
  • competition between insurers (may be both good and/or bad)
  • pool fragmentation (usually bad)
  • the need for risk equalisation (additional administration/cost)

Question 10

Health systems, resources pooling:

When resources are pooled within a health system, what kind of tiers may be introduced in so far as provision of benefits is concerned? (3)

Answer 10

1. Different populations may have access to different benefits
2. Benefits provided may be means tested
3. Social security pillars may be used/enforced

Question 11

Health systems, resources pooling:

What influence does pool size play in a health systems’ ability to provide health services? (8)

Answer 11

• Large pools are better than small pools because
  
  • …the larger the pool..
  • …the bigger the share of contributions which can be allocated exclusively to health services
  • this is manifested through, for example,
    
    • economies of scale
    • greater ability to carry risk
    • reduced need for solvency margins
• But beyond a critical size, economies of scale show diminishing returns
• In addition, the argument for large pools, is not the argument for single pools

Question 12

Health systems, purchasing:

Regarding purchasing/provision of services within a health system, what key factors arise? (1)

What does this lead to? (3)

Answer 12

• Limited budgets/supply and competing demands
• This leads to the need to ration healthcare benefits by considering:
  • what benefits are/need to be offered?
  • who gets what benefits?
  • who decides and how?

Question 13

Health systems, delivery:

In what various ways may healthcare services/benefits be delivered via a health system? (6)

Answer 13

1. Hospitals
2. Doctors - GPs and specialists
3. Pharmaceuticals
4. Equipment
5. Traditional medicine
6. Allied professionals

Question 14

What key aspects usually characterise or can be found prevalent within a healthcare system? (7)

Answer 14

• Its perception as a basic human right
• Information assymetry
• Rapidly rising demand and costs of healthcare
• Mutuality vs solidarity
• Principle agent issues
• The “3rd party payer problem”
• Issues arising due to the existence of insurance

Question 15

What do we mean by “information assymetry” in a healthare context?

What causes information assymetry in the healthcare environment?

Answer 15

• Information assymetry arises where there is a significant difference in material, relevant information possesed by parties/stakeholders involved in the provision/consumption of healthcare services.
• Causes
  • the health industry has quite irregular consumption so lack of experience,
  • different experiences not comparable,
  • results often related to biology and not service quality

Question 16

What factors lead to the rising demand for healthcare over time?

(8)

Answer 16

• Technological developments
• Demographic changes e.g. ageing populations in many countries
• The burden of disease e.g. lifestyle diseases
• Increased exposure, access and expectations
• Information asymmetry
• Supplier induced demand
• Existence of a third party payer
• Existence of insurance
• Cultural trends e.g. C-Section rate in SA

Question 17

What do we mean by mutuality in a health insurance context?

Answer 17

Mutuality:

• similar to a pooled fund
• premiums based on risk profile ie all known risk factors
• disadvantage is that
  
  • some policyholders will be excluded due to high risk or high premiums
  • benefits also limited by contract, thus some treatment may not be covered
  • denies universal access

Question 18

What do we mean by solidarity in a health insurance context?

Answer 18

Solidarity:

• premiums not based on risk, but according to ability to pay
• benefits paid according to need
• underpins national/social health insurance
• can lead to anti-selection…
• …so often insurance is compulsory to avoid free rider problem. Can have subsidies
• can lead to cross-subsidies (income, age, health status)
• in SA there is open enrolment for unrestricted funds:
  
  • funds must accept anyone at standard premium rates and minimum benefit package

Question 19

What do we mean by the “Principle-Agent” issue? (1)

Give examples of things that may add to the principle-agent issues

Answer 19

• Person advising care is also the person profiting from the delivery of the service
• Principle-agent issues may be caused by
  • Insurance: its interference in the relationship between doctor and patient
  • Existence of a third party payer which may alter dynamics
  • Existence of treatment protocols

Question 20

What kind of issues arise due to the presence of insurance on the provision of health services within a health system?

(1; 2 points)

(2; 4 points)

(3; 3 points)

Answer 20

Dual moral hazard

• Increased probability of ‘falling ill’
• Choice of service provider and treatment => wanting better service/treatment, which costs more

“3rd party payer” problem

• Use-it or lose-it => fact that someone else is paying for your costs
• Connection between benefit usage and contribution increases
• Economics terms: marginal utility is not equal to marginal cost
• Choice between elective/discretionary care…what is really necessary

Cost-sharing

• e.g. co-payments, deductibles…
• …is cost-sharing considered to be equitable/fair?
• What about low-income members?

Question 21

What are the key pillars of the actuarial control cycel?

(6)

Answer 21

Specify the problem

• Specifying problem: targeted outcome, risks faced, options available

Develop the solution

• Develop the solution: actuarial models, assumptions, results, implications, stakeholders, solution, alternative solutions

Monitor experience

• Monitoring experience: departures from target outcome, modify assumptions, surplus/deficits

While also considering

• Influence of commercial/economic environment and professionalism