Voluntary Health Insurance (VHI) Flashcards
Voluntary Health Insurance (VHI)
Private health insurance is often defined as insurance that is taken up voluntarily and paid for privately, either by individuals or by employers on behalf of employees (Mossialos & Thomson, 2002)
VHI Primiums
Private health insurance premiums are typically linked
to a person’s risk of ill health or set at a flat rate, whereas pre-payment for publicly financed coverage is almost always linked to income
Types of VHI - Supplementary
Driver of demand for PHI
Perceptions about the quality and timeliness of publicly financed health services
Main reason for having PHI
Offers faster access to services, greater choice of health care provider or enhanced amenities
Country examples in this volume
Australia, Brazil, Egypt, India, Ireland, Israel, Japan, Kenya, Republic of Korea, South Africa, Switzerland, Taiwan, China, UK
Types of VHI - Complementary (services)
Driver of demand for PHI
The scope of the publicly financed benefits package
Main reason for having PHI
Cover of services excluded from the publicly financed benefits package
Country examples in this volume
Canada, Israel, the Netherlands, Switzerland
Types of VHI - Complementary (User Charges)
Driver of demand for PHI
The existence of user charges (co-payments) for publicly financed health services
Main reason for having PHI
Cover of user charges (co-payments) for goods and services in the publicly financed benefits package
Country examples in this volume
France
France allows private entities to cover user charges (co-payments) for publicly financed health services. By 2015, over 90% of the population was covered by complementary private health insurance covering co-payments. In 2016, it became compulsory for employers
to provide this form of private health insurance for their employees. Employees now have compulsory private health insurance covering co-payments, while those who are not employed may have voluntary private health insurance covering co-payments. (Thompson et al. 2020)
Types of VHI - Substitutive
Driver of demand for PHI
Rules around entitlement to publicly financed coverage
Main reason for having PHI
Covers people excluded from publicly financed coverage or allowed to choose between publicly and privately financed coverage
Country examples in this volume
Chile; Egypt; Germany; the Netherlands before 2006; the United States
Germany allowed higher-earning employees to choose
between public, private and no coverage; previously they had been excluded from publicly financed coverage. Since 1994, those who opt for substitutive private health insurance can no longer return to public coverage after the age of 65 years, lowered to 55 years in 2000, even if their earnings fall below the income threshold. (Thompson et al. 2020)
Market Failure VHI
Economic theory posits that VHI’s will only result in an optimally efficient allocation of health care resources if certain assumptions hold: the probabilities of becoming ill are less than one (no pre-existing conditions), independent of each other (no endemic communicable diseases) and known or estimable (insurers are
able to estimate future claims and adjust premiums for risk); and there are no major problems with adverse selection, risk selection, moral hazard and monopoly (Barr, 2004).
Moral hazard and monopoly issues can be problematic for both compulsory and voluntary health insurance and researchers have questioned whether moral hazard poses a genuine threat to efficiency in
health insurance (Nyman, 2004; Einav & Finkelstein, 2018). This leaves probabilities, adverse selection and risk selection as the most likely sources of failure in markets for voluntary health insurance.
Insurance premiums are a function of the probability of illness and the expected costs of treating ill health. They are considered to be actuarially fair when they reflect the health risks of the pool of people being covered, allowing the insurer to meet its obligations to members
of the pool and avoid financial losses for the firm.
So-called adverse selection can lead to the collapse of a market. Ensuring stability is the main reason why private health insurance markets require financial regulation in the form of standards for insurer entry, operation, exit and reporting, although adverse selection is most effectively addressed by making health insurance compulsory. Third, to prevent adverse selection, insurers will engage in risk selection, attempting to attract low-risk people to the pool and deter high-risk people from enrolling.
Owing to risk selection, some people may not be able to obtain insurance if insurers reject applications for coverage; some may not be able to obtain sufficient insurance if pre-existing conditions or certain types of treatment are excluded from coverage; and some may not be able to obtain insurance at a price they can afford to pay. Private health insurance will, therefore, segment risk among enrollees as well as between those with and without private health insurance.
Some of these consequences can be avoided through
material regulation involving rules around premiums, benefits and other contractual conditions (Hsiao, 1995)
Does VHI enhance financial protection by filling gaps in publicly financed coverage?
Private health insurance will enhance financial protection for those who buy it by reducing their exposure to out-of-pocket payments.
Global spending data show that the contribution of private health insurance to current spending on health is marginal in the vast majority of countries. Across all countries, voluntary private health insurance accounts for only 4.6% on average, ranging from 2.4% in lower-middle-income countries to 6.3% in upper-middle-income countries. (Thompson et al. 2020)
In over 80 countries, voluntary private health insurance
accounts for less than 2% of current spending on health. Over time, the voluntary private health insurance share of current spending on health has remained relatively stable. (Thompson et al. 2020)
Globally, the relationship between voluntary private health insurance and the out-of-pocket payment share of current spending on health is very weak in spite of significant gaps in coverage in many countries, as demonstrated by high levels of out-of-pocket payments, spending on voluntary private health insurance is low. This indicates that while gaps in publicly financed coverage are a prerequisite for voluntary private health insurance, they are not enough for a private health insurance market to develop and grow. (Thompson et al. 2020)
Just because people have private health insurance does not mean that they do not experience gaps in coverage. In France, for example, the quality of private health insurance coverage (the extent to which it covers all the user charges a person has to pay) varies by socioeconomic status, with better-off people enjoying a greater degree of financial protection. (Thompson et al. 2020)
While private insurance can offer some financial protection for individuals, it has limitations in significantly reducing out-of-pocket payments or achieving universal coverage.
Does VHI enhance efficiency and quality in
health service organisation and delivery?
The premise underlying this question is that private entities are more likely than public bodies to improve some aspects of the health system’s performance because of incentives created by the pursuit of profit (or margins) in a competitive environment. ( Johnson 1995)
Private health insurance markets often fail to achieve the efficiency gains promised by competition.
Limited strategic purchasing: Unlike some public systems, private insurers haven’t focused on negotiating better prices or controlling costs with healthcare providers.
Risk selection: Insurers may prioritise selecting healthy individuals, which can drive up costs for the overall system. This was a strategy used in countries with competition between private and public insurance, like Chile, Germany
Cost shifting: Insurers may use tactics like co-payments to reduce their costs, but this can burden patients. South Africa is an example where insurers used co-payments and medical savings accounts, ultimately pushing costs to patients.
Higher administrative expenses: Compared to public systems, private insurers often have more overhead due to tasks like risk assessment and marketing. Data suggests administrative costs are consistently higher in private markets compared to public systems (OECD, 2018; Sagan & Thomson, 2016a).
As a result, private insurance markets may not be the best solution for achieving a cost-effective healthcare system.
What are User Charges?
Direct payment is made at the time of health service use.
Revenue generation: User charges can bring in additional funds for the health system (mentioned for low- and middle-income countries).
Discourage overuse: In theory, user charges might discourage people from seeking unnecessary medical care (though the passage questions this effectiveness).
Promote efficiency: The idea is that if people have to pay something, they might be more mindful of using services appropriately (although the passage points out this can backfire if it discourages necessary preventive care).
Concerns about user charges:
Reduced access: If charges are too high, people may avoid seeking needed care due to financial burden.
Inequity: User charges can disproportionately affect lower-income people who may struggle to afford them.
