Health
Insurance
Session Objectives
• Explain the origins of health insurance;
• Differentiate types of insurance;
• Describe major reimbursement
mechanisms;
• Outline the various forms of insurance;
and
• Outline the various problems of the
health insurance market.
What is insurance?
Health insurance is a means of pooling risks
across different population groups as a
means of avoiding the financial burden of
unanticipated and catastrophic illness
Based on risk aversion and uncertainty of
illness and medical outcomes
Traditional insurance for expensive potential
losses - car accidents,
hospitalization
Rationale for Introducing
Health Insurance
• Increase total available resources
• Improve stability of resources
- can plan around resources
generated
• Greater equity implications
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ORIGINS OF HEALTH INSURANCE
• European industries
– Germany’s sickness fund, 1840
• United States
– Blue Cross: Baylor teachers in Dallas, 1929
– Blue Cross: expanded during depression
– Blue Shield: California Medical Society, 1939
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Health insurance types
• Public sector: national schemes
(universal coverage) or social security
systems
• Private sector: employer-based schemes
or privately purchased
• Community-based or prepayment
schemes
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SOCIAL HEALTH INSURANCE
• Compulsory membership and
contribution
– Employers,
– Employees as well as
– Government
• Worker’s salary is base for workers’ and
employers’ contributions
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ADVANTAGES OF SOCIAL INSURANCE
• Members pay predictable premiums when healthy
to cover unpredictable costs when sick
• No adverse selection
• No fear of fund diversion (since ear-marked)
• Equity
– Cross subsidy between rich/poor, sick/healthy
– Premiums are income related but those unable may be
subsidized by government etc
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Problems Encountered with
Health Insurance Schemes
• 1. Adverse Selection:
Sicker individuals will choose to enroll more than healthier
individuals which will drive up the cost of the premium
and bankrupt the scheme.
• Corrective Measures:
• Enroll entire groups rather than individuals
• Mandatory enrollment
• Community rating (of illness probabilities)
• Monitoring of high cost patients
• Extended waiting periods before receiving first
benefits
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Problems Encountered with
Health Insurance Schemes
• 2. Moral Hazard:
Once enrolled, individuals tend to consume more health care
services, and providers tend to offer more services to
increase income.
• When have insurance, want to reap the benefits of it
• Can lead to excess use of health services
Corrective Measures:
• Co-payments by patients
• Limitation on benefits
• Patient education
• Deductibles - Money that must be paid by the individual before insurance
benefits kick in
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Problems Encountered with
Health Insurance Schemes
• 3. Cheating:
• abuse of membership
• Corrective Measures:
• Clear guidelines on who is a member
• Good patient tracking system
• Patient and provider education
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COMMUNITY BASED INSURANCE
Common Features:
• Targets households in informal sector (in
contrary to social insurance);
• Voluntary enrollment;
• Not-for-profit (solidarity oriented);
• Some level of involvement of local
leadership/influential groups.
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COMMUNITY BASED INSURANCE
Experiences in Africa
- Introduction in late 70s, mostly by NGOs;
- Recently booming in West Africa (more
than 600 schemes reported in 2003);
- Mostly participatory (community-based)
initiatives in West Africa;
- Dominantly technocratic (provider-
based) models in East Africa.
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COMMUNITY BASED INSURANCE
Reported impacts on various dimensions:
• Increased health care utilization;
• Social protection of households from
iatrogenic poverty;
• Financial stability for those with seasonal
income;
• Means/entry point for empowerment in
exercising socio-political power.
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COMMUNITY BASED INSURANCE
Challenges
• Limited effectiveness in closing financial
gaps at macro-levels;
• Limited efficiency due to considerable
transaction costs;
• Susceptible to bankruptcy in cases of
epidemics requiring re-insurance
support.
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