Proposal For A Taxonomy Of Health Insurance
Transcript Of Proposal For A Taxonomy Of Health Insurance
PROPOSAL FOR A TAXONOMY OF HEALTH INSURANCE
OECD Study on Private Health Insurance OECD Health Project Organisation for Economic Cooperation and Development June 2004
1
SUMMARY
1.
This paper proposes a taxonomy of health insurance arrangements with the purpose of informing
both policy analysis of alternative mixed systems of funding health care and data collection on such mixed
funding arrangements.
2.
Health insurance is a health financing mechanism that involves both pre-payment and risk
pooling. This paper proposes classifying health insurance arrangements on the basis of four main criteria:
x Sources of financing public or private health insurance.
x Level of compulsion of the scheme: mandatory or voluntary health insurance.
x Group or individual schemes
x Method of premium calculation in health insurance.
3.
This paper also spells out a few other important variables for analysing the structure and
performance of heath insurance mixes (e.g., nature of the carriers; characteristics of competition;
contractual relationship with providers; regulatory framework; extent and nature of public subsidisation).
4.
The criterion adopted in the taxonomy for distinguishing public from private health insurance
schemes is the main source of financing. According to this criterion, public schemes are those mainly
financed through the tax system, including general taxation and mandatory payroll levies, and through
income-related contributions to social security schemes. All other insurance schemes that are
predominantly financed through private premiums can be defined as private. The taxonomy then classifies
private health insurance schemes into mandatory (by law) and voluntary, distinguishing then two
subcategories: a) in relation to specific market subgroups (individual and group markets); b) in relation to
requirements for risk rating (community and experience rating).
5.
In sum, the following categories of health insurance can be identified by grouping the criteria:
x Public health insurance. This includes tax-based public health insurance and social security schemes.
x Private health insurance. These health insurance schemes are financed through private premiums, including:
Private mandatory health insurance. This includes health insurance that is compulsory per legal stipulation.
Private employment group health insurance. This includes health insurance that comes as part of a condition of employment.
2
Private community-rated health insurance. This includes voluntary policies taken up by individuals or groups voluntarily, where insurers are required by regulation to apply community-rated premiums (i.e. no discrimination in premium calculations on the basis of age, health status, claims history or other factors).
Private risk-rated health insurance. This includes voluntary policies taken up by individuals or groups voluntarily, where insurers apply risk-related premiums.
6.
Having distinguished between what is public and what is private health insurance, this paper also
proposes a classification of PHI types by function this plays within public coverage schemes. It
distinguishes four functional categories of PHI: primary (including substitute and principal);
complementary; duplicate; and supplementary.
3
TABLE OF CONTENTS
1. INTRODUCTION .................................................................................................................................5 Policy relevance of a typology of health insurance..................................................................................5 Method...................................................................................................................................................6
2. WHAT IS HEALTH INSURANCE AND HOW DOES IT DIFFER FROM OTHER WAYS OF COLLECTING RESOURCES FOR HEALTH ..........................................................................................7 3. A PROPOSED TAXONOMY FOR HEALTH INSURANCE MODELS AND MIXES .........................8
Criteria that can be used to classify models of health insurance...............................................................8 Sources of financing ...........................................................................................................................8 Level of compulsion on participation to the scheme ............................................................................9 Group or personal health insurance ...................................................................................................10 Method of premium calculation in health insurance...........................................................................10
Classification of health insurance models .............................................................................................11 Some examples ....................................................................................................................................11 Health insurance mix............................................................................................................................12 Boundary issues and areas of problematic classification........................................................................13 Other important characteristics of health insurance schemes not included in the typology .....................14
Management/administration of the insurance scheme and nature of the carrier...................................14 Relationship across insurers (competitive or not)...............................................................................15 Contractual relationship with providers .............................................................................................15 Tax funded subsidies for health insurance .........................................................................................15 Other legal stipulations affecting cross-subsidisation in the scheme...................................................16 4. A PROPOSED TAXONOMY OF FUNCTIONS OF PRIVATE HEALTH INSURANCE ...................17 Functional classification of private health insurance schemes................................................................17 Difficulties in using a functional classification for data collection. ........................................................18 Examples of functions of PHI across OECD countries. .........................................................................18 CONCLUSION .......................................................................................................................................20 REFERENCES ........................................................................................................................................ 21
4
1. INTRODUCTION
7.
The purpose of this paper is to propose a draft typology of health insurance schemes, with
emphasis on the models of private health insurance. There are extremely heterogeneous health insurance
arrangements across OECD countries, and similar schemes are often referred to with different names, or
different schemes come under the same terminology. For example, while most would agree with the
statement that the majority of health care systems publicly insure and pay for a range of basic health
services, confusion seems to emerge on the distinction between public insurance, mandatory insurance and
social insurance. These three terms are often used interchangeably, leaving the definition of private health
insurance as a residual category.
8.
The purpose of developing a taxonomy is two-fold. First, a taxonomy is a useful tool to guide
data collection, both in terms of statistical data, and in terms of gathering policy and regulatory information
on those insurance schemes that can be defined as “private”. Second, it helps policy analysis by identifying
variables that may affect the performance of a private health insurance market and by distinguishing
alternative roles that private schemes can play in mixed systems of funding health care.
9.
The taxonomy is comprised of two distinct inputs:
x A classification of ‘models’ of health insurance clarifying, in particular, proposed distinctions between what is public and what is private health insurance (section 3).
x A classification of ‘roles’ of private health insurance clarifying the function played by private health insurance in relation to public systems as well as within private markets themselves (section 4).
Policy relevance of a typology of health insurance
10.
Developing a taxonomy is a key task both to gather data on private health insurance suitable to
international comparative analysis, and to inform analysis of the policy implications of alternative mixed
systems of funding health care. A few examples can help understanding how key policy questions may
apply differently to countries with alternative mixes of health insurance.
x In countries that arrange principal cover for the population at large through private health insurance, failures in health insurance markets (moral hazard; adverse selection; risk selection) might hamper the achievement of policy goals of equity and efficiency. Issues of fairness in financing and access for high risk individuals or low-income groups are prominent. This calls for analysis of the role of regulation and financial incentives in preventing or reducing the potential social drawbacks of private health insurance in these cases.
x Countries with extensive public health cover might see in private health insurance a possible means to reduce cost pressures on public health systems. In many OECD countries private health insurance exists parallel to public schemes. Policy analysis may look at the impact of private health insurance on overall health expenditures and public health expenditure in particular. It could review whether private health insurance gives rise to services of different quality and/or improves individual choice and responsiveness of health systems. It may investigate how private health insurance should be regulated. Questions on whether take up
5
of private health insurance should be encouraged, for examples through fiscal incentives, or discouraged, also arise. Finally policy makers might be interested to review the trade-offs between regulatory measures and financial incentives to attain policy goals.
x Countries where a substantial range of services are excluded from the public system or copayments are very high, and where private health insurance covers these relevant risks, might consider whether private health insurance might deliver equity and access for bad risks or low-income individuals. Again, issues of whether take up of private health insurance should be encouraged, its distributional impact, and whether private health insurance should be regulated arise.
x Countries where a fraction of the population cannot have access to public cover or can choose a private alternative to the public cover might be concerned about avoiding services of different quality for public and privately covered individuals. Moreover, they might consider whether people with private cover should be allowed to obtain privileged/fast access to care or should have the same conditions of access as publicly insured people. Maintaining health insurance costs within control is also a key issue.
11.
Obviously, a first step to address these issues consists in identifying what is private health
insurance, and what is the health insurance mix. This paper hence proposes a typology that will help
analysing alternative ways of organising health insurance and its impact on health systems.
Method
12.
A good typology of health insurance schemes should satisfy three main principles. First, it should
be based on characteristics of the health insurance scheme that are objectively identifiable, independently
from the name given to the scheme in a certain country. Second, the typology should be consistently
applied to all countries so that schemes featuring similar characteristics can be grouped in the same
category. Third, the typology should be relevant for policy analysis and data collection, and should be
sufficiently broad to capture changes over time in the organisation and management of health insurance
schemes without having to develop again new categories.
13.
The method for developing a classification of health insurance schemes consists of two parts.
First, some variables or criteria that can be used to distinguish across different health insurance systems are
identified. Second, these variables are grouped together in order to identify meaningful categories on the
basis of the principles mentioned above.
6
2. WHAT IS HEALTH INSURANCE AND HOW DOES IT DIFFER FROM OTHER WAYS OF COLLECTING RESOURCES FOR HEALTH
14.
Health care systems pay for health care through mixed financing mechanisms. Such
heterogeneous arrangements differ in the way the costs of health services and the risk linked to the
variability of individual health expenditures are distributed across individuals and over time. The figure
below proposes to classify financing mechanisms on the basis of two criteria:
x Pre-payment. Collection and management of revenues so that contributions for the health care system are collected from individuals prior to (and independently from) the utilisation by individuals of health services.
x Pooling. Collection and management of revenues in such a way to ensure that the risk of
having to pay for health care is borne by all members of the pool and not by each contributor individually1.
Figure 1. Alternative options for financing health care systems.
Prepayment
NO
YES
Out-of-pocket
Medical Savings Accounts
NO
payments
(MSA)
(OOP)
Pooling
Spontaneous charity (1)
Health Insurance
YES
(HI)
Notes: (1) This case refer mainly to developing countries, where, when a situation of distress occurs, members of the community pool resources to face the immediate needs of one or some of its members.
15.
Health insurance can hence be defined as a way to distribute the financial risk associated with the
variation of individuals’ health care expenditures by pooling costs over time (pre-payment) and over
people (pooling). It differs from out-of-pocket payments because OOP do not provide for pooling of risks
nor pre-payment, while medical savings accounts provide for pre-payment but not pooling across risks
although they are often coupled with an insurance scheme.
1 WHO (2000), p. 96. 7
3. A PROPOSED TAXONOMY FOR HEALTH INSURANCE MODELS AND MIXES
Criteria that can be used to classify models of health insurance
16.
Three broad criteria for classifying health insurance models can be distinguished:
x Sources of financing.
x Level of compulsion of the scheme.
x Group or individual schemes.
x Method of premium calculation in health insurance (i.e. the extent to which premiums may vary according to health risk or health status or health proxies such as age).
Sources of financing
17.
There are three main sources of financing for health insurance schemes: tax financing, social
security contributions, and private premiums.
i.
Tax-financing include general taxation, local government taxes and earmarked taxation.
ii. Social security contributions are premiums collected to finance social security schemes, typically received as payroll tax contributed to by employers, employees or both. The level of contributions is set by a third party.
iii. Private-premiums refer to private payments that a policyholder agrees to make for an
insurance policy. An insurance policy consists of a written contract of insurance that is issued to a person insured by an insurer company2.
18.
A classification of health insurance schemes into public and private is hence proposed with
reference to the financing source:
x Public health insurance refers to insurance schemes that are financed through taxation or payroll contributions to social security schemes:
Tax-funded health insurance. In tax-funded schemes financing is collected by a central authority3 that either pays directly health care providers, or allocates these resources to
third payers.
2 Vaughan and Vaughan (1996). 3 This comprises of central government, state/provincial government and local/municipal government.
8
Social security schemes. Social security schemes are statutory programmes financed mainly through social security contributions, which are usually a share of earnings, i.e. income-related. Social security schemes are mandatory for defined categories of workers and their employers and protect insured persons and their dependants against, among others, loss arising from sickness/illness. The government is the ultimate guarantor of benefits, and usually directly participates in the financing of the scheme.
x Private health insurance refers to insurance schemes that are financed through private health premiums, which are often (but not always) voluntary. Although the government often regulates these type of insurance, the pool of financing is not usually channelled through the general government.
19.
It is important to note that there might be out-of-pocket payments such as co-payments,
deductibles and co-insurance in both public health insurance and private health insurance schemes. For
example, public health insurance members might be required to make co-payments. In Korea, co-payments
in public health insurance represent a share of up to 50% for outpatient services and 20% for in-patient
care.
20.
Private health insurance might also be publicly financed through subsidies or state contributions.
While private health insurance schemes might receive public finances and public health insurance schemes
can draw on private resources, this does not change the nature of public or private health insurance. It
might however present important policy implications because it may alter the degree of redistribution
implicit in these health insurance schemes.
Level of compulsion on participation to the scheme
21.
Health insurance schemes differ in the degree of obligation on individuals to participate in the
scheme. Broadly speaking, four levels of compulsion can be identified:
1. Mandatory participation in a single insurance scheme. Individuals are compelled by legal stipulation to take up insurance cover in a specified insurance scheme, for example the Dutch catastrophic medical expense scheme for long-term care and mental health (AWBZ).
2. Mandatory participation in a health insurance scheme, but freedom to choose across alternative schemes or carriers. This is the case of multiple payer systems. For example, the 1996 Swiss Health Insurance Law mandated basic health insurance for all Swiss residents leaving them free to choose among insurers that differ for premium levels, administrative services and in part for types of cover offered. Free choice of sickness funds for the population mandated to take up insurance was made possible in Germany in 1996 and in the Netherlands in 1992. Sickness funds differ for the contribution charged to insurees. In all three cases, insurers and sickness funds compete for attracting insurees.
3. Participation by the conditions of employment. This includes health insurance schemes that are not mandatory by law, but that are included in general agreements or employer-specific conditions. Employers are free to choose whether or not to offer health insurance. Individuals who join the company either are automatically insured, or can choose to enrol into the scheme (as in the case of employer-based health insurance in the USA).
4. Participation entirely voluntary. No level of compulsion exists in participating to the scheme. Even if participation is encouraged, for example through tax breaks or other fiscal incentives,
9
it remains entirely voluntary. These schemes are usually provided by private insurers, although in less frequent cases it involves publicly-owned insurers. This is for example the case of voluntary insurance provided by Medibank private in Australia.
22.
A simplified classification of health insurance schemes into mandatory and voluntary is
proposed:
x Mandatory health insurance includes schemes where individual participation is compulsory by government through legal stipulation4, whether there is a unique system or a choice among scheme/insurer. The mandate can apply to the entire population or to groups within it (e.g., individuals with income lower than a threshold). When mandated health insurance covers the population at large such as all residents of a country, the scheme can be referred to as National Health Insurance (NHI).
x Voluntary health insurance includes insurance where insurees participate on a voluntary basis, or where employers can choose themselves whether to offer health insurance cover to their employees either voluntarily or per effect of collective agreements.
Group or personal health insurance
23.
Individuals can take up insurance individually, or the cover can come as part of a group, for
example as an employment provision. In the USA, the majority of insurees are covered by employer-based
voluntary health insurance, while the self-employed and non-working people or those ineligible for
employer-sponsored insurance can buy voluntary individual insurance. The distinction between group
insurance and individual health insurance is important because the former can bring important social
elements into the private cover. Premiums under group insurance are often lower because insurers bear lower administrative costs and the size of the pool is greater5. A simplified classification of health
insurance schemes is proposed:
x Employment group health insurance includes health insurance schemes covering employees of a company. Insurers often offer group insurance as a separate category of insurance with a different pooling and pricing structure, often offering different benefit packages as well.
x Personal health insurance includes health insurance which does not apply to specific groups.
Method of premium calculation in health insurance
24.
Insurers can calculate health insurance premiums based on different conditions. One important
dimension is risk. Premiums can be calculated in three main ways:
x Income-related premiums. This is typically the case of social security schemes, where contributions are calculated as a share of earned income.
4 Adema (1998), page 8. 5 The advantage of group insurance partly explains why the U.S. federal government chose to facilitate access to
group coverage for certain individuals who would otherwise have lost employer-sponsored coverage. The federal “COBRA” law enables certain individuals to continue as members of their employers’ scheme for a specified time period, if they pay the full cost of the premiums, including the share previously paid by the employer.
10
OECD Study on Private Health Insurance OECD Health Project Organisation for Economic Cooperation and Development June 2004
1
SUMMARY
1.
This paper proposes a taxonomy of health insurance arrangements with the purpose of informing
both policy analysis of alternative mixed systems of funding health care and data collection on such mixed
funding arrangements.
2.
Health insurance is a health financing mechanism that involves both pre-payment and risk
pooling. This paper proposes classifying health insurance arrangements on the basis of four main criteria:
x Sources of financing public or private health insurance.
x Level of compulsion of the scheme: mandatory or voluntary health insurance.
x Group or individual schemes
x Method of premium calculation in health insurance.
3.
This paper also spells out a few other important variables for analysing the structure and
performance of heath insurance mixes (e.g., nature of the carriers; characteristics of competition;
contractual relationship with providers; regulatory framework; extent and nature of public subsidisation).
4.
The criterion adopted in the taxonomy for distinguishing public from private health insurance
schemes is the main source of financing. According to this criterion, public schemes are those mainly
financed through the tax system, including general taxation and mandatory payroll levies, and through
income-related contributions to social security schemes. All other insurance schemes that are
predominantly financed through private premiums can be defined as private. The taxonomy then classifies
private health insurance schemes into mandatory (by law) and voluntary, distinguishing then two
subcategories: a) in relation to specific market subgroups (individual and group markets); b) in relation to
requirements for risk rating (community and experience rating).
5.
In sum, the following categories of health insurance can be identified by grouping the criteria:
x Public health insurance. This includes tax-based public health insurance and social security schemes.
x Private health insurance. These health insurance schemes are financed through private premiums, including:
Private mandatory health insurance. This includes health insurance that is compulsory per legal stipulation.
Private employment group health insurance. This includes health insurance that comes as part of a condition of employment.
2
Private community-rated health insurance. This includes voluntary policies taken up by individuals or groups voluntarily, where insurers are required by regulation to apply community-rated premiums (i.e. no discrimination in premium calculations on the basis of age, health status, claims history or other factors).
Private risk-rated health insurance. This includes voluntary policies taken up by individuals or groups voluntarily, where insurers apply risk-related premiums.
6.
Having distinguished between what is public and what is private health insurance, this paper also
proposes a classification of PHI types by function this plays within public coverage schemes. It
distinguishes four functional categories of PHI: primary (including substitute and principal);
complementary; duplicate; and supplementary.
3
TABLE OF CONTENTS
1. INTRODUCTION .................................................................................................................................5 Policy relevance of a typology of health insurance..................................................................................5 Method...................................................................................................................................................6
2. WHAT IS HEALTH INSURANCE AND HOW DOES IT DIFFER FROM OTHER WAYS OF COLLECTING RESOURCES FOR HEALTH ..........................................................................................7 3. A PROPOSED TAXONOMY FOR HEALTH INSURANCE MODELS AND MIXES .........................8
Criteria that can be used to classify models of health insurance...............................................................8 Sources of financing ...........................................................................................................................8 Level of compulsion on participation to the scheme ............................................................................9 Group or personal health insurance ...................................................................................................10 Method of premium calculation in health insurance...........................................................................10
Classification of health insurance models .............................................................................................11 Some examples ....................................................................................................................................11 Health insurance mix............................................................................................................................12 Boundary issues and areas of problematic classification........................................................................13 Other important characteristics of health insurance schemes not included in the typology .....................14
Management/administration of the insurance scheme and nature of the carrier...................................14 Relationship across insurers (competitive or not)...............................................................................15 Contractual relationship with providers .............................................................................................15 Tax funded subsidies for health insurance .........................................................................................15 Other legal stipulations affecting cross-subsidisation in the scheme...................................................16 4. A PROPOSED TAXONOMY OF FUNCTIONS OF PRIVATE HEALTH INSURANCE ...................17 Functional classification of private health insurance schemes................................................................17 Difficulties in using a functional classification for data collection. ........................................................18 Examples of functions of PHI across OECD countries. .........................................................................18 CONCLUSION .......................................................................................................................................20 REFERENCES ........................................................................................................................................ 21
4
1. INTRODUCTION
7.
The purpose of this paper is to propose a draft typology of health insurance schemes, with
emphasis on the models of private health insurance. There are extremely heterogeneous health insurance
arrangements across OECD countries, and similar schemes are often referred to with different names, or
different schemes come under the same terminology. For example, while most would agree with the
statement that the majority of health care systems publicly insure and pay for a range of basic health
services, confusion seems to emerge on the distinction between public insurance, mandatory insurance and
social insurance. These three terms are often used interchangeably, leaving the definition of private health
insurance as a residual category.
8.
The purpose of developing a taxonomy is two-fold. First, a taxonomy is a useful tool to guide
data collection, both in terms of statistical data, and in terms of gathering policy and regulatory information
on those insurance schemes that can be defined as “private”. Second, it helps policy analysis by identifying
variables that may affect the performance of a private health insurance market and by distinguishing
alternative roles that private schemes can play in mixed systems of funding health care.
9.
The taxonomy is comprised of two distinct inputs:
x A classification of ‘models’ of health insurance clarifying, in particular, proposed distinctions between what is public and what is private health insurance (section 3).
x A classification of ‘roles’ of private health insurance clarifying the function played by private health insurance in relation to public systems as well as within private markets themselves (section 4).
Policy relevance of a typology of health insurance
10.
Developing a taxonomy is a key task both to gather data on private health insurance suitable to
international comparative analysis, and to inform analysis of the policy implications of alternative mixed
systems of funding health care. A few examples can help understanding how key policy questions may
apply differently to countries with alternative mixes of health insurance.
x In countries that arrange principal cover for the population at large through private health insurance, failures in health insurance markets (moral hazard; adverse selection; risk selection) might hamper the achievement of policy goals of equity and efficiency. Issues of fairness in financing and access for high risk individuals or low-income groups are prominent. This calls for analysis of the role of regulation and financial incentives in preventing or reducing the potential social drawbacks of private health insurance in these cases.
x Countries with extensive public health cover might see in private health insurance a possible means to reduce cost pressures on public health systems. In many OECD countries private health insurance exists parallel to public schemes. Policy analysis may look at the impact of private health insurance on overall health expenditures and public health expenditure in particular. It could review whether private health insurance gives rise to services of different quality and/or improves individual choice and responsiveness of health systems. It may investigate how private health insurance should be regulated. Questions on whether take up
5
of private health insurance should be encouraged, for examples through fiscal incentives, or discouraged, also arise. Finally policy makers might be interested to review the trade-offs between regulatory measures and financial incentives to attain policy goals.
x Countries where a substantial range of services are excluded from the public system or copayments are very high, and where private health insurance covers these relevant risks, might consider whether private health insurance might deliver equity and access for bad risks or low-income individuals. Again, issues of whether take up of private health insurance should be encouraged, its distributional impact, and whether private health insurance should be regulated arise.
x Countries where a fraction of the population cannot have access to public cover or can choose a private alternative to the public cover might be concerned about avoiding services of different quality for public and privately covered individuals. Moreover, they might consider whether people with private cover should be allowed to obtain privileged/fast access to care or should have the same conditions of access as publicly insured people. Maintaining health insurance costs within control is also a key issue.
11.
Obviously, a first step to address these issues consists in identifying what is private health
insurance, and what is the health insurance mix. This paper hence proposes a typology that will help
analysing alternative ways of organising health insurance and its impact on health systems.
Method
12.
A good typology of health insurance schemes should satisfy three main principles. First, it should
be based on characteristics of the health insurance scheme that are objectively identifiable, independently
from the name given to the scheme in a certain country. Second, the typology should be consistently
applied to all countries so that schemes featuring similar characteristics can be grouped in the same
category. Third, the typology should be relevant for policy analysis and data collection, and should be
sufficiently broad to capture changes over time in the organisation and management of health insurance
schemes without having to develop again new categories.
13.
The method for developing a classification of health insurance schemes consists of two parts.
First, some variables or criteria that can be used to distinguish across different health insurance systems are
identified. Second, these variables are grouped together in order to identify meaningful categories on the
basis of the principles mentioned above.
6
2. WHAT IS HEALTH INSURANCE AND HOW DOES IT DIFFER FROM OTHER WAYS OF COLLECTING RESOURCES FOR HEALTH
14.
Health care systems pay for health care through mixed financing mechanisms. Such
heterogeneous arrangements differ in the way the costs of health services and the risk linked to the
variability of individual health expenditures are distributed across individuals and over time. The figure
below proposes to classify financing mechanisms on the basis of two criteria:
x Pre-payment. Collection and management of revenues so that contributions for the health care system are collected from individuals prior to (and independently from) the utilisation by individuals of health services.
x Pooling. Collection and management of revenues in such a way to ensure that the risk of
having to pay for health care is borne by all members of the pool and not by each contributor individually1.
Figure 1. Alternative options for financing health care systems.
Prepayment
NO
YES
Out-of-pocket
Medical Savings Accounts
NO
payments
(MSA)
(OOP)
Pooling
Spontaneous charity (1)
Health Insurance
YES
(HI)
Notes: (1) This case refer mainly to developing countries, where, when a situation of distress occurs, members of the community pool resources to face the immediate needs of one or some of its members.
15.
Health insurance can hence be defined as a way to distribute the financial risk associated with the
variation of individuals’ health care expenditures by pooling costs over time (pre-payment) and over
people (pooling). It differs from out-of-pocket payments because OOP do not provide for pooling of risks
nor pre-payment, while medical savings accounts provide for pre-payment but not pooling across risks
although they are often coupled with an insurance scheme.
1 WHO (2000), p. 96. 7
3. A PROPOSED TAXONOMY FOR HEALTH INSURANCE MODELS AND MIXES
Criteria that can be used to classify models of health insurance
16.
Three broad criteria for classifying health insurance models can be distinguished:
x Sources of financing.
x Level of compulsion of the scheme.
x Group or individual schemes.
x Method of premium calculation in health insurance (i.e. the extent to which premiums may vary according to health risk or health status or health proxies such as age).
Sources of financing
17.
There are three main sources of financing for health insurance schemes: tax financing, social
security contributions, and private premiums.
i.
Tax-financing include general taxation, local government taxes and earmarked taxation.
ii. Social security contributions are premiums collected to finance social security schemes, typically received as payroll tax contributed to by employers, employees or both. The level of contributions is set by a third party.
iii. Private-premiums refer to private payments that a policyholder agrees to make for an
insurance policy. An insurance policy consists of a written contract of insurance that is issued to a person insured by an insurer company2.
18.
A classification of health insurance schemes into public and private is hence proposed with
reference to the financing source:
x Public health insurance refers to insurance schemes that are financed through taxation or payroll contributions to social security schemes:
Tax-funded health insurance. In tax-funded schemes financing is collected by a central authority3 that either pays directly health care providers, or allocates these resources to
third payers.
2 Vaughan and Vaughan (1996). 3 This comprises of central government, state/provincial government and local/municipal government.
8
Social security schemes. Social security schemes are statutory programmes financed mainly through social security contributions, which are usually a share of earnings, i.e. income-related. Social security schemes are mandatory for defined categories of workers and their employers and protect insured persons and their dependants against, among others, loss arising from sickness/illness. The government is the ultimate guarantor of benefits, and usually directly participates in the financing of the scheme.
x Private health insurance refers to insurance schemes that are financed through private health premiums, which are often (but not always) voluntary. Although the government often regulates these type of insurance, the pool of financing is not usually channelled through the general government.
19.
It is important to note that there might be out-of-pocket payments such as co-payments,
deductibles and co-insurance in both public health insurance and private health insurance schemes. For
example, public health insurance members might be required to make co-payments. In Korea, co-payments
in public health insurance represent a share of up to 50% for outpatient services and 20% for in-patient
care.
20.
Private health insurance might also be publicly financed through subsidies or state contributions.
While private health insurance schemes might receive public finances and public health insurance schemes
can draw on private resources, this does not change the nature of public or private health insurance. It
might however present important policy implications because it may alter the degree of redistribution
implicit in these health insurance schemes.
Level of compulsion on participation to the scheme
21.
Health insurance schemes differ in the degree of obligation on individuals to participate in the
scheme. Broadly speaking, four levels of compulsion can be identified:
1. Mandatory participation in a single insurance scheme. Individuals are compelled by legal stipulation to take up insurance cover in a specified insurance scheme, for example the Dutch catastrophic medical expense scheme for long-term care and mental health (AWBZ).
2. Mandatory participation in a health insurance scheme, but freedom to choose across alternative schemes or carriers. This is the case of multiple payer systems. For example, the 1996 Swiss Health Insurance Law mandated basic health insurance for all Swiss residents leaving them free to choose among insurers that differ for premium levels, administrative services and in part for types of cover offered. Free choice of sickness funds for the population mandated to take up insurance was made possible in Germany in 1996 and in the Netherlands in 1992. Sickness funds differ for the contribution charged to insurees. In all three cases, insurers and sickness funds compete for attracting insurees.
3. Participation by the conditions of employment. This includes health insurance schemes that are not mandatory by law, but that are included in general agreements or employer-specific conditions. Employers are free to choose whether or not to offer health insurance. Individuals who join the company either are automatically insured, or can choose to enrol into the scheme (as in the case of employer-based health insurance in the USA).
4. Participation entirely voluntary. No level of compulsion exists in participating to the scheme. Even if participation is encouraged, for example through tax breaks or other fiscal incentives,
9
it remains entirely voluntary. These schemes are usually provided by private insurers, although in less frequent cases it involves publicly-owned insurers. This is for example the case of voluntary insurance provided by Medibank private in Australia.
22.
A simplified classification of health insurance schemes into mandatory and voluntary is
proposed:
x Mandatory health insurance includes schemes where individual participation is compulsory by government through legal stipulation4, whether there is a unique system or a choice among scheme/insurer. The mandate can apply to the entire population or to groups within it (e.g., individuals with income lower than a threshold). When mandated health insurance covers the population at large such as all residents of a country, the scheme can be referred to as National Health Insurance (NHI).
x Voluntary health insurance includes insurance where insurees participate on a voluntary basis, or where employers can choose themselves whether to offer health insurance cover to their employees either voluntarily or per effect of collective agreements.
Group or personal health insurance
23.
Individuals can take up insurance individually, or the cover can come as part of a group, for
example as an employment provision. In the USA, the majority of insurees are covered by employer-based
voluntary health insurance, while the self-employed and non-working people or those ineligible for
employer-sponsored insurance can buy voluntary individual insurance. The distinction between group
insurance and individual health insurance is important because the former can bring important social
elements into the private cover. Premiums under group insurance are often lower because insurers bear lower administrative costs and the size of the pool is greater5. A simplified classification of health
insurance schemes is proposed:
x Employment group health insurance includes health insurance schemes covering employees of a company. Insurers often offer group insurance as a separate category of insurance with a different pooling and pricing structure, often offering different benefit packages as well.
x Personal health insurance includes health insurance which does not apply to specific groups.
Method of premium calculation in health insurance
24.
Insurers can calculate health insurance premiums based on different conditions. One important
dimension is risk. Premiums can be calculated in three main ways:
x Income-related premiums. This is typically the case of social security schemes, where contributions are calculated as a share of earned income.
4 Adema (1998), page 8. 5 The advantage of group insurance partly explains why the U.S. federal government chose to facilitate access to
group coverage for certain individuals who would otherwise have lost employer-sponsored coverage. The federal “COBRA” law enables certain individuals to continue as members of their employers’ scheme for a specified time period, if they pay the full cost of the premiums, including the share previously paid by the employer.
10