M10: Private and Social health insurance
20 important questions on M10: Private and Social health insurance
The demand for insurance depends on 6 things, which?
- The consumer’s risk aversion;
- The loss-probability
- The loss;
- The loading fee;
- The consumer’s income/wealth;
- Moral hazard.
Where does the premium consist of?
Where does the risk premium consists of?
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What happens with the expected profits with perfect competition?
Give two advantages and two disadvantages of health insurance
- Welfare gain for risk-averse individuals
- Access to care that would otherwise be unaffordable
Disadvantages:
- High expenses due to moral hazard;
- High expenses due to loading fee
Enthoven understands health insurance as social insurance. What is his definition of social insurance?
What are the non-essential and essential aspects of SI?
- mandatory
- taxes
- community rating
- earmarked contribution
Essential:
- cross-subsidies
Give the three distinct health care systems prior to 1989
- Bismarck system (Germany, 1883): social insurance system;
- Semashko system (Soviet Union, 1918): centralized systems of communist countries;
- Beveridge system (United Kingdom, 1948): National Health Service (NHS).
Give two economic arguments to enforce mandatory crosssubsidies
- Externalities (altruistic preferences; communicable diseases);
- The financial risk of becoming a high risk in the future. (mandatory crosssubsidies can provide assurance against long-term health risks).
Give four economic arguments to make health insurance mandatory (assuming health insurance is affordable):
- The prevention of free riding (some people may purposely not buy health insurance);
- A lack of foresight (individuals do not always know what is in their best interest, which may lead to underinsurance);
- Transaction costs of organizing crosssubsidies;
- Prevention of adverse selection
Demand for insurance exists if individuals are risk averse, what are the characteristics of the individuals utility? (3x)
- The disutility of losing money exceeds the utility of gaining a similar amount;
- The individual’s marginal utility of wealth is diminishing;
- The individual’s utility function is concave (bowed out to the x-axis).
Give six tools for scaling up health insurance
- providing information about “what insurance is”;
- regulation of the insurance market (e.g. concerning solvency requirements);
- tools to reduce (supply-induced) moral hazard;
- providing subsidies
- mandatory community rating;
- mandatory health insurance.
What are the four disadvantages of community rating?
- Selection
- Cross-subsidies most likely disproportional:
- Also cross-subsidies for risk factors such as oversupply and inefficiency;
- Also subsidies to high-income high-risks;
- Indirect premium differentiation via product differentiation.
- Sponsor forbids the high risks to pay extra premium to buy good quality care.
What are the four advantages of community rating?
- Transparency;
- Low transaction costs;
- Implicit cross-subsidies are mostly not considered as ‘public finance’ (like explicit contributions);
- It is believed to be a good guarantee for making health insurance affordable for high risks (holds only in the short term).
Why is community rating so popular? Give four reasons
- The direct effect on affordability is immediately visible;
- Potential indirect effects, such as poor-quality care or high premiums for the high risks may only show up after some years.
- Unawareness of the disadvantages;
- The perception that risk selection is not a problem
Give the characteristics of the Health Insurance Act (since 2006)
- Mandate for everyone in the Netherlands to buy individual private health insurance from a private insurer;
- Standard benefits package;
- Broad coverage: e.g. physician services, hospital care, drugs, medical devices, rehabilitation, prevention, mental care, dental care (children);
- Mandatory deductible: €385 (in 2018) per person (18+) per year
- Individual insurer is assumed to be(come) the prudent buyer of care;
- Much flexibility in defining the consumer’s concrete insurance entitlements;
- Selective contracting insurers - providers;
- Open enrolment & ‘community rating per insurer’ for each type of health insurance contract;
- Income-related care allowances per household;
- Risk equalization
Give the characteristics of the consumer choice in the Health Insurance Act
- Annual consumer choice of insurer and choice of insurance contract:
- in kind, or reimbursement, or a combination;
- preferred provider arrangement;
- voluntary additional deductible: at most + €500 per person (18+) per year;
- premium rebate (<10%) for groups.
- Voluntary supplementary insurance.
In what ways does health insurance differ from other indemnity insurance? (4x)
- Ex-ante appraisal of the loss is difficult --> MH
- Hard to relate the premium to preventive activities --> MH
- Reimbursement also in case of „own fault‟ --> MH
- Social HI --> cross subsidies
What are the essential differences between social and private health insurance? Note this question is odd because the opposite of social is asocial and of private is public.
- The benefits, eligibility requirements and other aspects of the program are defined by statute;
- Explicit provision is made to account for the income and expenses (often through a trust fund);
- It is funded by taxes or premiums paid by (or on behalf of) participants (but additional sources of funding may be provided as well); and
- The program serves a defined population, and participation is either compulsory or so heavily subsidized that most eligible individuals choose to participate.
What are similarities between social insurance and private insurance?
- Wide pooling of risks;
- Specific definitions of the benefits provided;
- Specific definitions of eligibility rules and the amount of coverage provided;
- Specific premium, contribution or tax rates required to meet the expected costs of the system.
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