E&F - lecture 11

Question 1

Rationale third-party in health care

Answer 1

1. Risk and uncertainty;
   - We do not know when we get sick and what will be expenses and therefore there is a demand for insurance, thus a third party
2. Information asymmetry;
   - Providers have more knowledge  SID  Supply induced moral hazard  third party needed to counteract these undesired effects
3. Externalities (e.g. “altruïstic preferences”; contagious diseases).

Question 2

Main functions for third parties in hc

Answer 2

1. Insurance function;
2. Agency function;
   – reducing moral hazard;
   – providing information about the quality of care;
   – being a prudent buyer of care on behalf of the consumer;
3. Access function: to guarantee universal access to basic health services.

Question 3

Major goal of healthcare reforms

Answer 3

Major goal of healthcare reforms:
Ø in many European / OECD countries: a Third Party acting as an effective agent on behalf of the consumer (the second function);
Ø in low-income countries: all three functions!

Question 4

Who can perform third-party role?

Answer 4

• Insurance companies;
• Employers;
• Unions;
• Providers of care (e.g. polyclinic-fundholder);
• Integrated insurer-provider organisations;
• Government (national, regional and local).

Question 5

Three models of paying providers by third-party payers (“insurers”):

Answer 5

a. reimbursement model;
b. contract model;
c. Integrated model.

Question 6

Reimbursement model

Answer 6

• Consumer pays premium
• Consumer provides care and gets bill
• Consumer informs insurer of expenses
• Insurer reimburses to the consumer
• Consumer pays provider
• No contact between provider and insurer: supplier induced moral hazard, no influence on the delivery of health care
• Insurer: third party payer
• Examples mandatory: France

Question 7

Contract model

Answer 7

• Between insurer and provider: contracts
• Insurer: purchaser of care on behalf of enrollees
• There are a lot of transaction costs: negotiation
• Examples mandatory: Germany and the Netherlands

Question 8

Integrated model

Answer 8

• Insurer and provider for one organization (to reduce transaction costs)
• Examples mandatory: southern and northern European countries

From contract to integrated: competitive market
From integrated to contract: monopolistic market

Question 8

Aspects crucial for the functioning, regulation and classification of healthcare systems:

Answer 8

1. Yes/no competition among the third-party-payers?
2. Yes/no competition among the providers of care?
3. Which type of payment from the third-party payer to the providers of care?

Question 9

Other aspects crucial for the functioning and regulation of healthcare systems:

Answer 9

• Who is the third-party payer/purchaser?
• Voluntary or mandatory health insurance?
• Which benefits are (not) covered?
• Cost sharing: how much? which forms?
• Yes/no for-profit insurers and/or providers of care?

Question 10

Model 1b or Model 2b?

Answer 10

• Purchaser power;
• largest in 2b
• Transaction costs;
• Larger in 1b
• Coordination of local health care delivery;
• In 1b
• Incentive for third-party purchaser to act as an agent on behalf of the consumer;
• Strong in 1b
• Incentives for risk rating or –in case of premium rate restrictions- incentives for risk selection.
• Issue in 1b, not in 2b
  We cannot say 1 is better than the other

Question 11

(Dis)advantages model 4

Answer 11

• Advantages model 4: strong ability to contain costs (e.g. budgeting), low administrative costs, relative simple legislation/regulation;
• Disadvantages model 4: lack of incentives for efficiency, for innovation and for consumer responsiveness; bureaucracy, fiscal underfunding, waiting lists.

Question 12

(Dis)advantages model 2

Answer 12

• Advantages model 2: providers have incentives for efficiency, for innovation and for consumer responsiveness;
• Disadvantages model 2: third-party purchasers have no/weak incentives for efficiency, for innovation and for consumer responsiveness;
  high transaction costs of contracting; complex regulation.

Question 13

(Dis)advantages model 1

Answer 13

• Advantages model 1: both third-party purchasers and providers have incentives for efficiency, for innovation and for consumer responsiveness;
• Disadvantages model 1: high transaction costs of contracting; incentives for risk selection; complex regulation.

Question 14

Model 1c

Answer 14

Model 1c = Enthoven’s model of ‘Managed Competition of Alternative Delivery Systems’ (e.g., HMOs).
Advantages of an HMO (health maintenance organization):
* One information system that all doctors and nurses use;
* Good coordination of care;
* Good planning of healthcare facilities;
* Low contracting costs;
* Incentives to avoid complications (= extra costs);
* Incentives to invest in prevention & health maintenance.

Question 15

Typology of health care systems

Answer 15

1. Traditional sickness fund insurance (Bismarck model)
2. National health insurance
3. National health services (Beveridge model and semashko model)
4. Mixed systems

Question 16

Bismarck system (1883)

Answer 16

• Contributions form both employers and employees
• Contracts between sickness funds and providers of care
• Compulsory for workers with an income below a certain level
• Government determines the conditions that govern the relations between sickness funds, providers and consumers.
• Original roots in work-related insurance, mostly up to a certain income.
• Extension of Bismarck system to population-wide coverage:
  o Switzerland (1996);
  o Belgium (1998);
  o France (2000);
  o The Netherlands (2006).

Question 17

Semashko system (1918)

Answer 17

• Highly centralized, funded by the state budget
• Free access to health care for all
• Facilities are state-owned and managed by district and regional authorities
• Population allocated to the outpatient clinic in its area; no free choice of doctor
• Hospital and outpatient clinics are budgeted
• Physicians are salaried
• Physicians ask for gratuities
• Separate medical facilities for industrial workers

Question 18

Beveridge system (NHS, 1948)

Answer 18

• Centralized and funded by the state
• (nearly) free access to health care for all
• Facilities are state-owned and budgeted
• Hospital physicians are salaried
• Government regulation less strong than in semashko systems
• Some room for private services and private health insurance
• General practitioner: contract with the NHS
  no extensive occupational health care sector

Question 18

Typology of health care systems (Toth)
Toth (2016) discern:

Answer 18

• three ideal types of financing systems:
  – Voluntary insurance
  – Social health insurance
  – Residual programs
• and two additional models:
  – Compulsory national health insurance
  – Universalist system.

Question 19

Typology of health care systems (Toth)
Five different financing models:

Answer 19

• Voluntary insurance
  1. Citizens are free to obtain coverage, or pay out-of-pocket;
  2. Competing private insurers, risk rating;
• Social health insurance
  1. e.g., Bismarckian system;
  2. Mandatory for certain categories of workers;
  3. Contribution related to salary;
  4. Workers assigned to non-competing sickness funds;
• Residual programs
  1. Financed by the community, but only available to particular categories;
  2. e.g., elderly, low-income, serious disease, minors, …
• compulsory national health insurance
  1. The state requires all residents to take out private health insurance covering essential health services;
  2. Competing private insurers;
  3. Subsidies for low-income citizens;
  4. Multi-payer system.
• Universalist system
  1. Single-payer system;
  2. For the entire population;
  3. Right to health care is linked to being a resident;
  4. Mandatory contributions.

Question 20

As an additional criterion Toth (2016) discern integrated versus separated models:

Answer 20

Ø Integrated model
Ø Insurers provide most of the care needed by their policy holders directly through their own facilities and healthcare personnel.
Ø Insurer and providers coincide, constituting a single organization.
Ø Sperated model
Ø Insurers and providers are functionally separated;
Ø Insurers reimburse the expenditures of health care.

Question 21

Three waves of health care reforms

Answer 21

• Universal coverage and equal access;
• Controls, rationing and expenditures caps;
• Incentives and competition.

Question 22

Features & Problems after the first wave

Answer 22

• Common features:
  – mandatory comprehensive coverage;
  – limited co-payments;
  – free choice of health care providers;
  – open-ended financing system.
• Common problem:
  – uncontrollable health care cost inflation;
  – (due to) the absence of constraints on demand and supply.

Question 23

Second wave: cost containment

Answer 23

• Introduction of constraints on demand:
• co-payments, coinsurance and deductibles;
• moderately used in most G7-countries.
• Introduction of constraints on supply:
• control of capacity and entry;
• rate regulation;
• overall expenditure caps for health professionals;
• global budgeting of hospitals;
• extensively used in all G7-countries.

Question 24

Problems after the second wave

Answer 24

• Increasing conflicts between rationing policies and the “right” to health care;
• Supply and price regulation result in inefficient allocation of resources (government failure);
• Supply and price regulation cannot contain long-run cost growth;
• A lack of incentives for efficiency!

Question 25

Third wave: incentives and competition

Answer 25

1. At the patient level (at the time that services are used);
2. Competition at the level of insurance purchase (rather than at the time of services used);
3. Incentives within the provider community.

Question 26

From model 2b towards model 1b

Answer 26

Possible transition paths:
1. Monopolistic insurer & several branches, that over time become independent;
2. Give choice to groups of insured;
3. Give consumers the option to conclude a contract with a neighbouring ‘purchaser’;
4. Coalitions of GP-fundholders;
5. Give consumers the option to opt-out.

Question 27

Dutch health care system

Answer 27

• Much private initiative and private enterprise: physicians, hospitals, insurers;
• Still much (detailed) government regulation;
• GP-gatekeeper;
• Health insurance before 2006 a mixture of:
  Ø mandatory public insurance (67%),
  Ø voluntary private insurance (33%).
• From 2006: mandatory private insurance (100%).

Question 28

Reforms since the early 1990s

Answer 28

The core of the reforms is that:
Ø Risk-bearing insurers will be the prudent buyer of care on behalf on their members;
Ø Government will deregulate existing price- and capacity-controls;
Ø Government will “set the rules of the game” to achieve public goals: access, affordability, good quality.

Question 29

Health Insurance Act (since 01jan06)

Answer 29

• Mandate for everyone in the Netherlandsto buy individual private health insurance from a private insurer;
• Standard benefits package;
• Broad coverage: e.g. physician services, hospital care, drugs, medical devices, rehabilitation, prevention, mental care, dental care (children);
• Mandatory deductible: €385 (in 2018) per person (18+) per year.
• Individual insurer is assumed to be(come) the prudent buyer of care;
• Much flexibility in defining the consumer’s concrete insurance entitlements;
• Selective contracting insurers - providers;
• Open enrolment & ‘community rating per insurer’ for each type of health insurance contract;
• Income-related care allowances per household;
• Risk equalization.

Question 30

Consumer choice

Answer 30

• Annual consumer choice of insurer and choice of insurance contract:
  – in kind, or reimbursement, or a combination;
  – preferred provider arrangement;
  – voluntary additional deductible: at most + €500 per person (18+) per year.
• Voluntary supplementary insurance.

Question 31

Regulated Competition

Answer 31

• Competition among health insurers:
  consumers have a periodic choice among health insurers or ‘health plans’ (‘organizations in which insurer and providers are integrated’);
• Competition among providers of care:
  insurers may selectively contract with providers;
• Not a free market; regulation to achieve society’s public goals.