HP400 Financing Health Care Lecture 3 PDF

HP400 Financing Health Care Lecture 3: Social Health Insurance Voluntary Health Insurance George Wharton Associate Professor (Education) Department of Health Policy lse.ac.uk/health-policy Sources of health care finance Public Private taxation (local,...

HP400 Financing Health Care Lecture 3: Social Health Insurance Voluntary Health Insurance George Wharton Associate Professor (Education) Department of Health Policy lse.ac.uk/health-policy Sources of health care finance Public Private taxation (local, national, direct, voluntary health insurance indirect, general, earmarked) medical savings accounts (MSAs) social health insurance (SHI) user charges informal payments ▪ Policy choices regarding the funding mix for health have a significant impact on financial protection and equity ▪ Sources vary by the extent of pooling and pre-payment ▪ Public detaches payment from health status ▪ The greater the share of private revenues, the less equity in the distribution of financial burden ▪ All systems draw on more than one source Voluntary Health Insurance What is VHI? Health insurance that is taken up and paid for at the discretion of individuals or employers (including the state as employer) on behalf of individuals. It can be offered by public or quasi-public bodies and by for-profit and non-profit private organisations (just as private insurers can provide statutory coverage). Voluntary vs. statutory - a more useful distinction than public vs. private? Effects of adverse selection Start with a community-rated, self-pay health plan Community of four with insurance premium = $3000 “A” with E(B) = $600 “B” E(B) = $2000 “C” E(B) = $4000 “D” E(B) = $6000 Marginal analysis: E(B) vs E(C) Decision of healthier enrollees “A” and “B”? Average cost per enrollee increases. Premiums increase => “C” drops out. Severe adverse selection can set in motion price spirals that theoretically can cripple or destroy insurance markets. The death spiral... Stage 1 Stage 2 Stage 3 high risks average risks low risks Risk rated premiums reduce adverse selection in voluntary insurance markets Individuals assigned to different risk categories based on various identifiable personal characteristics Age, gender, occupation, family history, prior illnesses. Premiums then based on: Benefit design and coverage Relation between risk category and expected health care costs Effects of risk rating Premiums are closer to the expected medical benefits Creates an incentive for people to adopt favourable lifestyles – more efficient? Low users will be able to purchase both high- and low-benefit plans. High users with limited financial means won’t be able to afford insurance (and low users become high users as they age) Individuals must choose between multiple (sometimes many) benefits package/premium combinations  competition or consumer confusion? Risk to patients? Community-rated premiums Based on the risk characteristics and expected medical benefits of the entire plan membership Not on the health history or risk status of a particular person Potential for both adverse and advantageous/risk selection increases Risk of either price spirals and/or underinsurance Need to implement risk equalisation schemes and regulate to mitigate this Insurer responses to adverse selection and moral hazard Charge deductibles and copays (inc. high deductible plans with low premiums) Exclude people with pre-existing conditions Limit choice of providers Charge more for individual than group policies Limit panels to established or only a few specialists Create and market high benefit and low benefit policies to separate high users from low users (market/risk segmentation) Insurance: declining block pricing (out-of- pocket spending) OOPs $ Deductible PF Co-Pay 0.2 PF Stop Loss Co-Insurance 0 Spending $1000 $10,000 Policy goals for VHI Relieve fiscal pressure on public budgets Strengthen health system performance Address gaps in coverage Other goals? VHI: different roles Source: Mossialos and Thomson (2004), Foubister et al (2006) VHI role Market driver VHI covers Examples Substitutive Population coverage Groups excluded or Germany/Chile, opting out Netherlands pre-2006 Complementary Service coverage Excluded services Netherlands post-2006 (services) Complementary (user Cost coverage Statutory user charges France/Slovenia/ charges) Canada Supplementary Consumer satisfaction Faster access & Ireland/UK consumer choice Why is role important? Interactions with public system, regulation, impact on performance… Is VHI the right policy tool? Will VHI cover important coverage gaps? Will those who need VHI have access to it? Can this be achieved without undermining value in public spending on health (i.e. without making those who rely on statutory coverage worse off)? Let’s look at some evidence There are very few large VHI markets globally Voluntary private health insurance as a share (%) of current spending on health globally by country income group, 2017 Source: Thomson, Sagan, Mossiaos 2020 There are very few large VHI markets globally countries in which VHI = >10% of total health spending (2019) Source: WHO data Variation in coverage by VHI type Share (%) of the population covered by VHI by role it plays, latest year available Source: Thomson, Sagan, Mossiaos 2020 VHI ranked by % of total spending on health (from low to high) in 2019… … shows VHI does not do well in filling gaps in coverage Source: WHO data Association between VHI and OOP WHO (2020); Thomson, Sagan, Mossialos (eds) 2020 Increasing inefficiency in VHI (Canada) Source: Law, Kratzer & Dhalla (2014) VHI administrative costs as % of revenue in LMICs 35 30 25 % of revenue 20 Private 15 Public 10 5 0 Bel Fra Fra Ger Ire Ita Neth UK US (NP) (FP) (NP) Source: Mathauer I , Nicolle E. 2011. A global overview of health insurance administrative costs: what are the reasons for variations found? Health Policy102: 235–46. Administrative costs as % of revenue in Europe (2012) Source: Sagan and Thomson, 2016 VHI may undermine health system performance No evidence of superior efficiency of private insurers (administration, purchasing) VHI may draw resources away from publicly financed health care: ▪ risk segmentation ▪ skews distribution of public resources Source: Thomson 2012, Thomson and Mossialos (eds) 2012, Thomson, Sagan, Mossialos (eds) 2020 Substitutive VHI Substitutive VHI? Requirements Risks careful design: ‘exclusion’ better risk segmentation than ‘opting out’ loss of contributions (from richer regulation for affordable access to people) VHI inadequate financial protection monitoring, political will equity concerns (access to care) no fiscal relief low incentives for efficiency if serving high income/low risk only A near extinct species Germany: why do so few high-earning employees opt out? (substitutive) premiums risk rated (including gender until 2012) dependants not automatically covered benefits fragmented employers’ contributions capped benefits usually in cash providers charge higher prices premiums rise steeply with age 10% of premiums go to ageing reserve Who opts for PHI in Germany? More likely to switch if: Favourable risk profile Male Single with no dependants Young (under 40 years old) And more inclined to take risk Insureds switch as soon as possibility arises Low demand for PHI in Germany. Why? 400 Switches in thousands 300 200 100 0 20002001200220032004200520062007200820092010 2011 20122013 Years SHI to PHI PHI to SHI Source: VDEK, 2015 Increasing demand for private supplementary insurance under SHI/VHI Grabka (2014) Number of private supplementary insurance holders almost doubled between 2000 and 2012 Increased from 5.7 in 1997 to 15 million in 2018 Above-threshold earners in VHI Income threshold and social security contribution limit SHI/VHI contributions capped as soon as individual exceeds SSCL Risk segmentation and differences in health care use in Germany (substitutive VHI) Prevalence of: Public plan VHI People aged 65+ 22% 11% Chronic disease* 23% 11% Self-reported poor health* 21% 9% GP contact* 81% 55% Specialist contact (outpatient) 47% 45% Difficulty paying for outpatient Rx* 26% 7% Waiting time for gastroscopy 36 days 12 days *Statistically significant after controlling for differences in age, gender and income Source: Mielck and Helmert 2006, Schneider 2003, Lungen et al 2008 Germany: state intervention (substitutive) over 55s cannot return to GKV standard policy for all over 55s insured for at least 10 years 10% surcharge on new premiums to fund ageing reserves (2001) and in 2009 this fund was made “portable” Drug prices from statutory systems valid in private system (2011) High income status need only be demonstrated for 1 year (2011) Substitutive VHI in Chile Variable SHI (PUBLIC) PHI (PRIVATE) Population coverage 79% 13% Income based premiums + fiscal Funding Risk rated premiums subsidies for the non-payers Spending per capita USD 318 631 (2015) Administrative spending 1.2 14 – 20 (% of total spending) 7% of taxable income Minimum of 7% of taxable Premium calculation (with ceiling) income, risk-rated Benefits Uniform package Varies among the plans Open enrollment Yes No Every dependent adds a fee to Family Insurance Yes the premium. Complementary VHI Complementary VHI covering user charges Requirements Risks user charges must be high inadequate financial protection regulation for affordable access equity concerns to VHI efficiency concerns careful design to avoid undermining value in public spending Large markets very rare (examples: France, Slovenia, Canada) Regulation has intensified over time Complementary VHI covering excluded services Requirements Risks technical, financial no market will develop resources for priority financial protection and equity setting, HTA concerns political will to define statutory benefits Large markets very rare Insurers may not develop products unless there is significant population coverage to spread risk % of population in Canada with complementary coverage by income group Source: Bolatova and Law 2019 Cost-related non-adherence to medications in Canada (Complementary VHI) Prevalence of cost-related non- adherence in Canada and comparable countries with universal health and pharmaceutical coverage Complementary VHI France: growing policy concerns still 4 million people without VHI (financial barriers most common reason for not having VHI) the quality of VHI coverage has declined regressive VHI premiums: 3% of income for the richest quintile, 10% of income for the poorest quintile income-related inequality in likelihood of having VHI and quality of VHI coverage variation in care use and foregone care by VHI status high transaction costs may undermine value-based user charges policy Source: Couffinhal and Franc 2014 Variation in use of health care by VHI status, France (2008) % visiting a GP or specialist or foregoing care in the last 12 months; % visiting a dentist in the last 24 months VHI CMU-C VHI No VHI 90 68 Source: Perronin et al 2011 45 23 0 GPs Dentists Specialists Foregone care Supplementary VHI Supplementary VHI A select few get faster access and choice Risks: Dual practice Impacts priority setting and waiting times VHI in the UK: value for money? (supplementary) Public health expenditure (all hospital/community health services) = £2,647 per person - Source (ONS) VHI premium per person covered – Source (Moneysavingexpert.com) A healthy, non-smoking 35-year-old. £688/year to £935/year. A healthy, non-smoking 70-year-old. from £2,238/year to £2,834/year. VHI in the UK usually excludes: pre-existing or chronic conditions accident and emergency admission normal pregnancy and childbirth, kidney dialysis, organ transplants, HIV/AIDS, outpatient drugs and dressings, infertility treatment, preventive treatment, drug abuse, self inflicted injuries, cosmetic surgery, gender reassignment, mobility aids, experimental treatment and drugs, war risks and injuries arising from hazardous pursuits... Regulatory goals, approaches, examples Goal Approach Examples Market stability Financial ▪ solvency margins ▪ reporting requirements Consumer protection Material ▪ marketing practice ▪ relations with providers Access Material ▪ open enrolment ▪ lifetime cover ▪ community rating ▪ premium review, approval, caps ▪ mandated (minimum) benefits ▪ prohibit exclusion of pre-existing conditions Regulatory responses to causes of market failure Problem Consequences Possible solutions? Adverse selection little risk pooling, no education, subsidies, market, only some compulsion insured Risk selection no insurance for open enrolment, some groups community rating, risk rating Moral hazard overuse, oversupply cost sharing, ‘managed care’ Info asymmetry no price competition standardised benefits Summary 1 Cross-country variation in VHI role, policy design, market size, impact Assumptions about superior efficiency of private insurers do not hold May improve access and responsiveness, but only to the population covered. VHI may not address major problems and may create new challenges VHI may exacerbate fiscal pressure (especially substitutive VHI) VHI may undermine equity and value in public spending the larger the market, the greater the challenges Summary 2 Proceed with caution, clear principles: Clarity about goals Complementarity: how best to combine public and private resources to achieve health policy goals – requires understanding of how VHI interacts with the health system Careful policy design: anticipate & minimise risks Capacity for regulation and oversight  System type Key characteristics Countries Social insurance: Occupationally based, no choice of insurance France, Austria unreformed fund Social insurance: Managed by public insurance funds, with risk Germany, Belgium, Israel competitive (public) equalisation schemes Managed by private (often non-profit) insurance Social insurance: funds. Government defines premiums, provider The Netherlands, Switzerland competitive (private) payment methods, and access terms Eight Single payer system: Local taxes with central risk equalisation scheme Sweden, Denmark, Norway devolved possible Single payer system: centralised Centralised taxes, risk adjustment schemes allocate resources to regions UK, Italy, Spain, Canada, Portugal systems Japan, South Korea, Poland, Hungary, Single payer: insurance Based on insurance contribution, single insurance Slovakia, Slovenia, China (different contribution fund schemes for urban and rural populations), Indonesia 50% taxation, 50% private insurance. Public Mixed system: taxation & system covers "bad" risks (elderly and disabled); USA (Medicare/Medicaid for “bad” risks) private insurance private insurance covers "good" risks (employed people) Option to opt out of public system, leading to risk Opt-out from public Germany (8% opt out), Chile (13% opt segmentation and potential weakening of public Insurance out) system Recap: raising revenue: key policy questions Is the funding system progressive (vertically equitable)? Is the funding system horizontally equitable? Does funding result in redistribution? How does the financing system affect coverage and access to health care? How does the financing system affect allocative efficiency and technical efficiency? How does the financing system affect cost containment? How does the financing system affect the wider economy?