Lecture 3 - Voluntary Health Insurance

Question 1

What is voluntary health insurance? Who can offer it?

Answer 1

Health insurance is taken up and paid for by an individual or employers on behalf of individuals.

It can be offered by public or quasi-public bodies and for-profit or not-for-profit organisations.

Question 2

What is the main market failure that can happen with VHI?

Answer 2

Adverse selection since coverage is voluntary so healthy people can drop out.

Question 3

What are risk-rated premiums?

Answer 3

Premiums are based on your individual health status, medical history, and other risk factors like age, gender, and lifestyle habits (smoking etc.).
People with higher risks of needing medical care pay more.
In theory, financing is more efficient since premiums are closer to expected costs.

Question 4

What are community-rated premiums?

Answer 4

Premiums are based on the average health risks of the entire group (community) covered by the insurance plan.
Everyone in the pool pays roughly the same, regardless of individual health.
This system promotes fair access to health insurance for people with pre-existing conditions.
However, it can lead to higher premiums for young and healthy individuals who may subsidize the costs of those who need more healthcare.

Question 5

What market failures are of higher risk under community-rated premiums as opposed to risk-rated premiums?

Answer 5

Adverse selection: people with higher needs purchase health insurance

Advantageous selection: insurance companies cater to people with low-risk for the community premiums are lower. Result is people with lower risk get insurance

Question 6

What are some insurer responses to adverse selection and moral hazard?

Answer 6

Charge deductibles and co-pays
Exclude those with pre-existing conditions
Limit choice of providers and specialists
Charge more for individual than group policies (group policies pool risk)
Market high-benefit and low-benefit policies to high and low-use customers separately (market segmentation so premiums better match risk)

Question 7

What are the 3 policy goals of VHI?

Answer 7

1. Releive fiscal pressure on public budgets
2. Strengthen health system performance by introducing competition into the market
3. Address gaps in coverage

Question 8

Where is it common to find VHI in the world?

Answer 8

The majority are low/middle-income countries like South Africa, Namibia, Venezuela

Question 9

What is substitutive health insurance?

Answer 9

Covering people who are excluded or opt-out from the public health insurance system. Focuses on filling gaps in your primary health insurance plan.

Question 10

What is complementary health insurance?

Answer 10

This type complements your primary plan by focusing on areas not typically covered at all. It helps fill in the gaps for services your main plan might completely exclude (e.g. vision and dental)

Question 11

What is supplementary health insurance?

Answer 11

Offers faster access to services, greater choice of health care provider or enhanced amenities

Question 12

What are the 2 types of complementary insurance?

Answer 12

Cover user charges or services excluded from primary plan.

Question 13

If you want better population coverage, what VHI type should you use?

Answer 13

Substitutive so you cover people who are excluded or opt out of the public system

Question 14

What are 2 country examples of substitutive health insurance?

Answer 14

Germany: once you reach a certain income level you can opt out of public system, regulated.

Chile: free movement between public and private. Premiums are so high only wealthy people can afford them

Question 15

If you want better service coverage, what type of VHI should you use?

Answer 15

Complementary to cover excluded services

Question 16

If you want better cost coverage, what type of VHI should you use?

Answer 16

Complementary to cover user charges

Question 17

If you want better customer satisfaction, what type of VHI should you use?

Answer 17

Supplementary for faster access and better choice

Question 18

What 3 countries have high levels of complementary insurance because the cost of medications is so high?

Answer 18

Canada, Slovenia, France

Question 19

Why might user charges not mitigate moral hazard when there is a wealthy population?

Answer 19

User charges are used to combat moral hazard but if wealthy have insurance to cover those charges then moral hazard returns

Question 20

Why is VHI not that efficient?

Answer 20

Large admin cost

VHI may draw resources away from publicly financing health care

Risk segmentation, skews the distribution of public resources

Question 21

What are some risks with substitutive VHI?

Answer 21

1. Risk Segmentation due to Risk Selection:

Insurance companies prefer healthy individuals who are less likely to make claims.
This can lead to a situation where young, healthy people opt for private plans, leaving the public system with a higher proportion of sick people who require more expensive care.
This makes it harder for the public system to function financially.

2. Loss of Contributions from Richer People (Inadequate Financial Protection):

Wealthier individuals tend to gravitate towards private plans.
This removes them from the public pool, reducing the overall financial contributions to the public system.
This can lead to a shortage of funds for the public system, impacting the quality of care for those who remain.

3. No Fiscal Relief to Public Sector:

Even if some people switch to private plans, the public system may still be responsible for providing some level of care to everyone (e.g., emergency services).
This means the public system still incurs costs, but with a smaller pool of contributors.

4. Equity Concerns with Regard to Access to Care:

Private plans may offer better access to specialists, shorter wait times, and more amenities.
This creates a two-tiered system where those who can afford private plans have better access to care than those who rely on the public system.
This raises concerns about fairness and equal access to healthcare.

5. Low Incentive for Efficiency if Serving High-Income, Low-Risk Only:

Since private plans might focus on attracting healthy individuals, there may be less pressure to control costs or improve efficiency in delivering care.
This can lead to higher overall healthcare costs in the long run.

Question 22

What are 2 risks associated with supplementary VHI?

Answer 22

1. Dual practice - professionals work in both private and public practice, can impact quality, cost and equity of services
2. Impacts priority setting and wait times (since people with supplementary coverage are supposed to get faster care)

Question 23

Why is it important than VHI is stable?

Answer 23

Because if they go bankrupt then the volume of people who need public coverage will sky rocket.

Public and private need to work together so this doesn’t happen.