PRIVATE HEALTH INSURANCE FOR UHC

LONDON

A ZUSA SATO
S CHOOL OF ECONOMICS / A SIAN D EVELOPMENT 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)

Pooling

The 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)

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 covered

by government

Complementary covers all or part of the residual costs not

otherwise reimbursed by government (eg cost sharing, copayments)

Classifications

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 and
supplementary (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 and
efficiency

May be encouraged, catalyzing public sector reform

Choice

For consumers who are able to afford it

Potential disadvantages of PHI

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 from
coverage which shifts costs of care to the public
system

Information failure
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 Africa and Chile, retirees drop out of
the private sector market
segmentation/exclusion breaches equity

Regulation

Mitigating information failures

Premium

Product

Prevent insurers from

differentiating premia according
to risk
Mandatory inclusion of all risks
and conditions

Regulate benefits provided

In UK, the Office of Fair Trading
recommends insurers create a
core term (basic) benefits package
to guarantee a minimum package

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

Failure to provide proper risk-sharing and risk-adjustment mechanisms and
lack of PHI knowledge by the public

Growth expected
in stronger
economies with
high private health
expenditure
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

Alternative roles for PHI (1)

Government sponsored premium payment to private insurers
India
Moving away from state-financed health care system and has a
relatively 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 insurance
companies
Households can then access public or private facilities
Colombia
Mandatory health insurance and everyone is required to contribute
premia
Insurers operate with an insurance premium known as Capitation
Payment Unit (block amount of money transferred by the
government 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 of
private 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 societys policy
objectives
Even with heavy regulation (which is politically and technically difficult
to 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

Key References
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: Consumer
Protection and Prudential Regulation

THANK YOU!