Private Health Insurance for UHC

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PRIVATE HEALTH INSURANCE FOR UHC

AZUSA SATO

LONDON SCHOOL OF ECONOMICS / ASIAN DEVELOPMENT BANK

26 JANUARY, 2016



Content

• Overview

• Trends

• Potential advantages

• Potential disadvantages

• Mitigating information failures

• Performance of PHI

• PHI experience around the world

• Alternative roles for PHI

• Conclusion



PHI: Overview (1)

Definition

Insurance schemes financed through private health premia . Take

up of private health insurance is often, but not always, voluntary

(it may also be compulsory for employees as part of their working

condition)

Premium setting

Premia are non income-related, although the purchase of PHI can

be subsidised by the government through tax credits or relief,

vouchers or cash benefits (Austria, Ireland, Portugal)

PoolingThe pool of financing is not channelled nor administered through

the government , even when the insurer is government-owned

Risk rating

Commonly, based on probability of an individual making a claim

Group-rated – purchased through an employer (average risk of

employees in the firm)

Community-rated – based on average risk of population in a

geographically defined area



PHI: Overview (2)

Premium

collection

Can be independent private bodies, or private not for profit

companies and funds (Belgium, Denmark, Finland, France, Germany,

Ireland, Italy, Lux, Netherlands, Spain, Switz, UK)

Classifications

• Primary – PHI only available coverage because there is no

government coverage or individuals are ineligible. OR:

individuals are entitled but have opted out (substituted)

• Duplicate – coverage for services already included under

government insurance, while also offering access to different

providers or levels of service . Does not exempt individuals from

contributing to government programs

• Supplementary – coverage for additional services not coveredby government

• Complementary – covers all or part of the residual costs not

otherwise reimbursed by government (eg cost sharing, co-

payments)



Trends in PHI (1)

Evolution to PHI, 2005-2013



Trends in PHI (2)

PHI coverage, by type, 2015

PHI can be both duplicate

and supplementary

(Australia);

complementary andsupplementary (Denmark

and Korea); duplicate,

complementary and

supplementary (Israel

and Slovenia)

Source: OECD 2015



Potential advantages of PHI

Rich can self finance • Gvt can target limited resources for the poor

Additional resources • For infrastructure to benefit all

Innovation andefficiency

• May be encouraged, catalyzing public sector reform

Choice • For consumers who are able to afford it



Potential disadvantages of PHI

Information failure

• In benefits package – PHI relies on competition – if

people are not able to compare benefits across

different plans, they do not have perfect information

•

Insurers may also exclude certain conditions fromcoverage which shifts costs of care to the public

system

• In premia setting – PHI is expensive and the poor are

unlikely to be able to pay, while high risk persons have

to pay high premia

– In South Afr ica and Chile, reti rees ‘drop out’ of

the private sector market

segmentation/exclusion breaches equity



Mitigating information failures

• Prevent insurers fromdifferentiating premia accordingto risk

• Mandatory inclusion of all risks

and conditions

Premium

• Regulate benefits provided

• In UK, the Office of Fair Tradingrecommends insurers create acore term (basic) benefits packageto guarantee a minimum package

Product R e

g u l a t i o n



Performance of PHI

• PHI performance varies according to country or regional situation and

institutional capacity

• Generally, PHI has been disappointing for many countries: health costs

have not decreased, quality of care has not improved and coverage rates

have not increased

• Deteriorations in equitable access, originating from a regulatory

framework insufficient to effectively integrate PHI into existing structures

• In developing countries, PHI is merely an alternative for the development

of more efficient and universal insurance mechanisms



PHI experience around the world

Weak and

delayed

regulation

PHI (including CBHI) is generally designed as supplementary, covering

better-quality treatment that only the rich can afford, or alternatively offer

low coverage

Failure to provide proper risk-sharing and risk-adjustment mechanisms and

lack of PHI knowledge by the public

Growth expected

in stronger

economies withhigh private health

expenditure



Alternative roles for PHI (1)

Government sponsored premium payment to private insurers

• India

• Moving away from state-financed health care system and has arelatively large PHI market

• A trust fund (collected through earmarked tax on liquor sales) is used

to (partially or wholly) pay premia of the poor to private insurancecompanies

• Households can then access public or private facilities

• Colombia

• Mandatory health insurance and everyone is required to contributepremia

• Insurers operate with an insurance premium known as CapitationPayment Unit (block amount of money transferred by thegovernment for each individual enrolled)

• Government subsidises those who cannot afford premia

• Coverage can be from both public and private health plans



Alternative roles for PHI (2)

Private sector equity/PPP – Abu Dhabi

• ‘Daman’ system had low capacity and large

inefficiencies on provider side, inadequate

regulatory framework and transparency

regarding cost and quality

• PPP model employed: private health

insurance company Munich RE owns a 20%

share of equity and Daman maintains 80%

• Encourages transparency in health

financing and greater involvement ofprivate sector

• May increase productivity of healthcare

providers



Conclusion

• PHI is an alternative way to finance health care and can expand options

• PHI has several advantages, including innovation, additional resources

and providing choice

• PHI also has serious disadvantages stemming from information failures

• PHI without adequate regulation fails to meet society’s policy

objectives

•

Even with heavy regulation (which is politically and technically difficultto implement), is not an efficient or equitable way to fund health care

• Role of PHI varies significantly according to country situation and

institutional capacity, but creative ideas should be sought



• World Bank (2007) Private voluntary health insurance in development: friend or foe?

• OECD (2015) Health at a Glance 2015 OECD Indicators

• Mossialos et al (2002) Funding health care: options for Europe

• OECD statistics online (accessed 2016)

• Brunner et al (2012) Private Voluntary Health Insurance: ConsumerProtection and Prudential Regulation

Key References



THANK YOU!

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Private Health Insurance for UHC