Chapter X - Health Insurance

Question 1

What is health?

Answer 1

Healthis a state of complete physical, mental and social well-being and not merely the absence of disease or infirmity.

Question 2

What are the roles of the state in providing healthcare?

Answer 2

• Infrastructure
• Training
• Collecting funds/paying for care
• Regulation

Question 3

Who are the stakeholders of health insurance?

Answer 3

• Public (both covered/uncovered)
• State (Funding/Supplying/Regulating)
• Insurers
• Healthcare providers
• Employers & Employees

Question 4

What are the consumer needs in health insurance?

Answer 4

• Medical expenses
• Loss of income
• Cost of lifestyle changes
• Debt/Reduced savings
• Nursing/Frail care

Question 5

What are the main health insurance products?

Answer 5

• Income protection
• Critical illness
• Long-term care
• Private medical insurance (short-term products)

Question 6

Characteristics of health insurance products:

Answer 6

• Group versions of products, i.e. employer buys policy
• Typically without profits
• large anti-selection/moral hazard risk
• Waiting periods and/or exclusions, excesses and co-payments are common
• Mostly offer protection only (RISK) and not savings, except Long-Term Care
• Often short-term
• Complex products (principal agent issue)
• Claim events are not as clear cut as with other categories of cover – many perils which can trigger claims
• Clear relationship between health risk and age (sometimes this risk may not be priced for see mutuality vs solidarity)

Question 7

What does health insurance have in common with general insurance?

Answer 7

• May be short term
• Uncertainty over frequency of claims or amount of these claims
• Can apply similar reserving techniques (run-off triangles)
• Claims seasonality
• Often regularly renewable with reviewable premiums

Question 8

What does health insurance have in common with life insurance?

Answer 8

• May be long term (CI, Long-term care, IP)
• Usually then one claim of known amount (or annuity-type)
• Similar investment and reserving requirements
• Often also sold by life insurers

Question 9

Mutuality vs Solidarity

Answer 9

Mutuality - Pooling of risks after individual risks are assessed – premiums paid according to the assessed risk
Solidarity - Risks pooled before being assessed; premiums determined without reference to individual risks; may be linked to ability to pay, or overall risk of pool

Question 10

Four main functions performed in the healthcare system

Answer 10

• Revenue collection (from public; employers, taxpayers)
• Purchasing (medical schemes, administrators)
• Pooling (med schemes, government, pool size is NB)
• Delivery (Hospitals, practitioners, pharmacies, nurses)

Question 11

Why does demand for healthcare keep increasing as time goes by?

Answer 11

• Technological developments
• Demographic changes e.g. ageing populations in many countries
• The burden of disease e.g. lifestyle diseases
• Increased exposure, access and expectations
• Supplier induced demand
• Existence of a third party payer
• Information asymmetry
• Cultural overlay (C-section vs natural births)

Question 12

Principal-Agent Issues

Answer 12

• Person advising care is also the person profiting from the delivery of the service
• Can lead to supplier-induced demand
• Interference of insurance in the relationship between - doctor and patient
• Advice/treatment may differ depending on whether individual has insurance
• Existence of a third party payer alters dynamics – neither doc nor patient cares about cost/cost saving

Question 13

The impact of information asymmetry in healthcare

Answer 13

• Healthcare pays for consults, cannot get a second opinion
• Difficulty making comparisons or questioning advice
• Difficulty assessing quality of treatment
• Emotional situations
• Making decisions in life threatening situations