Social Health InsuranceSocial Health Insurance

Dr Kambiz MonazzamDr Kambiz Monazzam

May 12-15, 2005

Khoramabad – Lorestan

Goals of This SessionGoals of This Session

Provides an overall context that gives Provides an overall context that gives rise to Social Insurancerise to Social Insurance

Introduce market and government Introduce market and government failures that the design of a Social failures that the design of a Social Insurance program should considerInsurance program should consider

Introduce the essential characteristics of Introduce the essential characteristics of Social InsuranceSocial Insurance

At Personal LevelAt Personal Level

At Social LevelAt Social Level

RISKISK

• Savings

• Barrowing

• Family/ Friends Help

• Charity

• Insurance

RISKRISK RISKRISK And way to confront with

How Do people deal with risk?How Do people deal with risk?

Why would people Why would people like to be insured?like to be insured?In which circumstances?In which circumstances?

Do people want to be insured Do people want to be insured at any risks?at any risks?

Why Do Nations Consider Why Do Nations Consider Social Insurance?Social Insurance? Diseases and illnesses are uncertain; Diseases and illnesses are uncertain;

serious illnesses can bankrupt families;serious illnesses can bankrupt families; Health and health care are basic necessities Health and health care are basic necessities

for life, for life, EQUITABLEEQUITABLE access to health care is access to health care is a national goal for most countries a national goal for most countries

Insurance (pooling risks) enhance people’s Insurance (pooling risks) enhance people’s well-being and prevent impoverishmentwell-being and prevent impoverishment

When Insurance When Insurance initiated/deviseinitiated/devised?d?

There are great risksThere are great risks People know the risksPeople know the risks Risk imposes great burden on Risk imposes great burden on

individualindividual Uncertainty at individual levelUncertainty at individual level

Health & InsuranceHealth & Insurance

Can’t pay the cost of cureCan’t pay the cost of cure Don’t come back to Don’t come back to

healthy state healthy state Long treatment periodLong treatment period

Loss of work/discharge Loss of work/discharge Falling down the poverty lineFalling down the poverty line

Risk Aversion:The desire to replace an

uncertain loss with a steady &certain premium payment

The basic PrincipleThe basic Principle behind Insurance: behind Insurance:

Insurance:Insurance:

Individual view: Individual view: Risk Aversion Risk Aversion

Social view:Social view: Risk Pooling way Risk Pooling way Cross SubsidyCross Subsidy

Insurance: Pools the risksInsurance: Pools the risks ; ;but, don’t vanish or decreased but, don’t vanish or decreased

itit

Bilateral Exchange Model for Bilateral Exchange Model for GoodsGoods

Consumers Providers

Service

Money Hospitals Clinics

Physicians

Government

Government

Charity

Charity

ConsumersConsumers ProvidersProviders

Exchange Model for Exchange Model for GoodsGoods

Service

User fees

Payments

Prem

ium

s

& T

axes

Trilateral Exchange Model for Trilateral Exchange Model for GoodsGoods

Consumers Providers

Service

User fees Hospitals Clinics

Physicians

Financing Organization

TreasuryTaxes

Premiums

Payments

GOVGOVGOVGOV

Charity

ProviderProviderConsumersConsumers

InsuranceInsurance

Rely On Free MarketRely On Free MarketFor Insurance?For Insurance?

Market and competition deal with efficient Market and competition deal with efficient allocation of resources, not allocation of resources, not EQUITYEQUITY

There are serious There are serious market failuresmarket failures in the in the insurance market and in the health services insurance market and in the health services markets. Regulations have not been able markets. Regulations have not been able to effectively remedy the market failuresto effectively remedy the market failures

Social insurance is a major approach to Social insurance is a major approach to promote equity and address these market promote equity and address these market failures failures

Failures In The Private Insurance Market

Asymmetry of Information

Adverse Selection by insurance buyers

Absence of Optimal Insurance Products

Risk Selection by insurance company

Elderly and less healthy people left

uninsured

Market Failures In The Health Services Markets

Insurance

Moral Hazard

Inefficiency

Asymmetry of Information, Imperfect Agency, Barrier to Entry

High Prices/High Profits, Excessive Quantity of Services

Monopolistic Power of Providers Induce Demand

Rely On The Rely On The GovernmentGovernment For Insurance?For Insurance?

There are serious government failures: There are serious government failures: Vested interest politicsVested interest politics Government operates as a monopolyGovernment operates as a monopoly Government manages by top down Government manages by top down

hierarchy, higher ranked officials’ hierarchy, higher ranked officials’ interests dominant over common interests dominant over common people’s interestpeople’s interest

Government manages by bureaucratic Government manages by bureaucratic rules that stifle innovation and create rules that stifle innovation and create inefficiencyinefficiency

Government Failures

• Distorted Payment-Misallocation of Resources

• Inequity

• Inefficiency/Higher Costs

• Unfriendly to Users• Possible Corruption

Vested Interest Politics

Public Monopoly,Poor Public

Administration

Special Features Special Features of Social Insuranceof Social Insurance

Mandatory for designated population to avoid Mandatory for designated population to avoid adverse and risk selectionsadverse and risk selections

A social contract between government and the A social contract between government and the enrolleesenrollees

Eligibility for benefits require that the enrollee Eligibility for benefits require that the enrollee has paid the premium (contribution) for a has paid the premium (contribution) for a minimum period. Thus SI is not a right of every minimum period. Thus SI is not a right of every citizen, and not a welfare programcitizen, and not a welfare program

Financially autonomous and has to maintain its Financially autonomous and has to maintain its own solvencyown solvency

Benefits prescribed by lawBenefits prescribed by law Benefits not directly related to contributions Benefits not directly related to contributions

Advantages of Social Advantages of Social Insurance Insurance

Pools risks widelyPools risks widely Can improve equityCan improve equity Mobilizes financial resources for health Mobilizes financial resources for health

care from workers in the formal sectorcare from workers in the formal sector Low administrative costsLow administrative costs Can control health expenditure Can control health expenditure

inflation if the program is designed inflation if the program is designed properlyproperly

Disadvantages of Social Disadvantages of Social Insurance Insurance

Requires sophisticated knowledge and Requires sophisticated knowledge and organization to do it properlyorganization to do it properly

Alters locus of financial power and this Alters locus of financial power and this power can be misusedpower can be misused

Can’t provide universal coverage Can’t provide universal coverage unless the government subsidizes the unless the government subsidizes the farmers and workers in the informal farmers and workers in the informal sector sector

Impacts of Social Impacts of Social InsuranceInsurance

Organize and mobilize funds for healthOrganize and mobilize funds for health Pool risks between the healthy and the sick, Pool risks between the healthy and the sick,

cross subsidy by the high-income to the low-cross subsidy by the high-income to the low-incomeincome

Can provide cost effectiveness health careCan provide cost effectiveness health care Can control health cost inflationCan control health cost inflation Can improve efficiency and quality of health Can improve efficiency and quality of health

carecare

Potential negative economic impacts:Potential negative economic impacts:– Excess burden, labor market, price inflationExcess burden, labor market, price inflation

Major Planning IssuesMajor Planning Issues

Covered population/eligibilityCovered population/eligibility Enrollment/premium collectionEnrollment/premium collection Benefit packageBenefit package Costing/financingCosting/financing Macro organization Macro organization

Public, Semi-public, Private non-Public, Semi-public, Private non-profit, for-profitprofit, for-profit

Monopoly or competitionMonopoly or competition Payment systemPayment system

Major Planning Issues (2)Major Planning Issues (2)

Administrative systemsAdministrative systems– Eligibility card and enrollmentEligibility card and enrollment– Premium collection and accountingPremium collection and accounting– Claim cardClaim card– Monitoring quality and costMonitoring quality and cost– Management informationManagement information

Social Health Social Health InsuranceInsuranceHistory & Background:History & Background: Poverty law in 19Poverty law in 19thth century century Saving accounts introduced by Saving accounts introduced by

GOVGOV Employer responsibility for work Employer responsibility for work

injuriesinjuries Workers help associationWorkers help association

Social Security historySocial Security historyBismarck Model Bismarck Model (Germany)(Germany)

Medical Care Benefits 1883 Employment injury Benefits 1884 Old age & Invalidity Benefits 1889 Social Security Law 1911 Social Assistance Law 1911

8.Unemployment Benefits 1906 Old age Benefits 1908 Total coverage Insurance 1911Insurance 1911 Medical Care Benefits 1912 Family Law 1945 National Health System 1946 Anti poverty Law 1948

Social Security historySocial Security historyBeveridge Model (UK)Beveridge Model (UK)

1. Old age Benefits

2.Disability Benefits

3.Death Benefits

4.Sickness Benefits

5.Maternity Benefits

6.Medical Care Benefits

7.Employment injury Benefits

8.Unemployment Benefits

9.Family Benefits

Social Security Benefits (ISSA)Social Security Benefits (ISSA)

( مزاياي بازنشستگي )

( مزاياي از كار افتادگي )

( مزاياي فوت )

( مزاياي بيماري )

( مزاياي زايمان )

( مراقبت هاي پزشكي )

( مزاياي حوادث ناشي از كار)

( مزاياي بيكاري )

RR ( مزاياي خانواده ) (2)

Changing Vision toward RISK REDUCTION

Changing Vision toward RISK REDUCTION

From From

Medical INSMedical INSMedical INSMedical INS

To To Health INSHealth INSHealth INSHealth INS

So Can reduce the risk So Can reduce the risk

Medical VS HealthMedical VS Health

MedicalMedical In order to cover the costs In order to cover the costs Have to increase premiumsHave to increase premiums

HealthHealth Decrease costsDecrease costs Decrease Invalidity or disease Decrease Invalidity or disease so increase quality of life & so increase quality of life & productivityproductivity

When we Have a good When we Have a good health Insurance !?health Insurance !?

What’s Insurance sales?What’s Insurance sales?

A PROMISEA PROMISE

SO,SO, They know they have to do They know they have to do

their Promisetheir Promise If they don’t do on time If they don’t do on time

Somebody obliged them to:Somebody obliged them to: do the taskdo the task Pay penalty for lossPay penalty for loss Pay penalty for breaking the social Pay penalty for breaking the social

lawlaw

They don’t have “rich father”They don’t have “rich father”

– If NO !!!If NO !!!

Social Health Insuranc?

Do you have

JOlNUS

JOlNUS

Sweden & UK have no socialSweden & UK have no social insurance!insurance! Make a Business!? Make a Business!?

Why don’t you establish one?Why don’t you establish one?