The market for health insurance

Transcription

1 The market for health insurance Guochang Zhao RIEM, SWUFE Week 8, Spring 2016 April 28, / 17 Guochang Zhao RIEM, SWUFE The market for health insueance

2 The insurance market People buy insurance between they are rsik-averse There are a number of types of risk associated with health Illness and deceases Treatments and costs People don t generally self-insure by saving money when well to use in times of illness In general, it is assumed that people are more likely to buy insurance to cover low-probability events involving large losses than high-probability events associated with small losses, and they are more likely to buy lottery tickets when there is a low probability of winning a large amount 2 / 17 Guochang Zhao RIEM, SWUFE The market for health insueance

3 insurance company has assumed, where the fair value is the Setting insurance premium expected payout Moral H The part of the insurance premium that exceeds the fair Health I value ofinsurance the insurance is ais mechanism called the loading for assigning fee It is risk theoretically to a third The reaso correct party; to think it of is also the load, a mechanism not the premium, for pooling as risk the price over aof largeinsuranc insurance group The ofprice insured of insurance persons is the cost of transferring health in risk Particularly Premium when is based comparing on the expected different insurance payout, plus policies, surance it is convenient administrative to express costs, the loading reverse fee funds, as a and percentage profits based of the the case o on the ratio of premium to expected payout: care asso insured company Mor Loading fee: premium - fair value of the insurance ket is illu L 100 x ((premium/e ) 1), for health where E probability of illness x treatment costs D 0 DIfin demand the servi covers on What determines suppliers entering the market? Suppliers of insurance will be more willing to enter market situations where they can make a reasonable estimate of what their payouts will be, or where they can assess the degree of 3 / risk 17 they Guochang are assuming Zhao They RIEM, SWUFE will also be Themore marketwilling for healthto insueance insure the axis i surer and

4 Experience vs community rating Experience rating occurs when insurance companies base premiums on past levels of payouts, which is often done in the case of car or homeowners insurance The reform of car insurance in China in the late 2015: 商业车险保费 = 基准保费 费率调整系数 In the case of health insurance, age and preexisting conditions may be good predictors of future utilization of healthcare services and may be used to determine premiums Community rating applies when each member of an insurance pool pays the same premium per person or per family for the same coverage It is not efficient However, sometime, equity is another social objective 4 / 17 Guochang Zhao RIEM, SWUFE The market for health insueance

5 Moral hazard Moral hazard refers to the phenomenon of a personõs behavior being affected by his or her insurance coverage - hidden behavior Once you buy the fire issuance, you may not take care any longer Other examples? The main problem of moral hazard is an increase in demand for healthcare services utilized Moral hazard operates differently in the health insurance market than in other insurance markets Instead of paying a sum of money to the insured in the case of an adverse event, they reduce the price of the health care associated with the adverse event or illness 5 / 17 Guochang Zhao RIEM, SWUFE The market for health insueance

6 FIGURE 5-1 Effects of insurance on consumption FIGURE 5-1 Effects of insurance on consumption of health care and effects of insurance consumption of of medical health care care and effects of insurance consumption of medical care a a Price Price Effects of Insurance on Consumption Effects of Insurance of Health on Care Consumption of Health Care D 1 D 0 D 1 D Quantity Quantity Effects of Insurance Consumption Effects of of Insurance Medical Care Consumption of Medical Care 6 / 17 Guochang Zhao RIEM, SWUFE The market for health insueance markets markets insured insured copaym copaym sumer i sumer in of mora of mora Manag Manag scribes scribes Care is Care is as gate as gatek referral referral whom t whom and req and req compan compan ply side ply side provide provide Stop-Lo Stop-Lo on out- on outmust must be be

7 FIGURE 5-1 Effects of insurance on consumption of health care 0 and effects of insurance consumption of medical a care Quantity b a Price Price 0 0 Effects of Insurance Consumption Effects of Insurance of Medical on Care Consumption of Health Care D 1 D 2 D 1 D D 0 0 Quantity Quantity Source: Data from Johnson-Lans Effects (2004) of Insurance A Health Economics Primer Boston: Pearson Addison Consumption Wesley of Medical Care 6 / 17 Guochang Zhao RIEM, SWUFE The market for health insueance compan markets ply side insured provide copaym Stop-Lo sumer in on of mora outmust be Manag sion Af scribes stop-los Care is of addit as gatek This inc referral penditu whom t Advers and req compan Adverse ply side related provide amoun about Stop-Lo th ity on of outmust in be selectio

8 Cost sharing to offset effects of moral hazard Deductibles: A deductible is a level expenditure that must be incurred before any benefits are paid out Coinsurance: Coinsurance is the proportion of the total expenditure that is paid by the insured Use of usual, customary fees to limit payments Managed Care: Managed care is a catch-all phrase that describes a variety of different kinds of insurance instruments Stop-Loss Provisions: ave annual limits on out-of-pocket expenditures (per person or per family) that must be borne by the insured 7 / 17 Guochang Zhao RIEM, SWUFE The market for health insueance

9 The social health insurance in Chengdu 8 / 17 Guochang Zhao RIEM, SWUFE The market for health insueance

10 The social health insurance in Chengdu 8 / 17 Guochang Zhao RIEM, SWUFE The market for health insueance

11 The social health insurance in Chengdu 8 / 17 Guochang Zhao RIEM, SWUFE The market for health insueance

12 The social health insurance in Chengdu 8 / 17 Guochang Zhao RIEM, SWUFE The market for health insueance

13 The social health insurance in Chengdu 8 / 17 Guochang Zhao RIEM, SWUFE The market for health insueance

14 Adverse selection Lemon market and adverse selection - hidden information Adverse selection exists when people with different health-related characteristics than the average person increase the amount of health insurance purchased In the health insurance market, high risk people are those with more severe health problems than the average person Who are more likely to buy health insurance? Insurers engage in positive selection, where the companies structure coverage to both avoid adverse selection and also to attract lower-than-average risk subscribers The conditions necessary for insurance markets to function well: individuals with different risk proper- ties differ on some characteristic that can be l inked to the purchase of insurance and that there is some way that an insurance company can discover the link 9 / 17 Guochang Zhao RIEM, SWUFE The market for health insueance

15 Employer-based insurance Advantages of employer-based insurance Group insurance is important for offsetting adverse selection Community rating applies within the employment group, which results in some degree of risk sharing Economies of scale in administrative rates are lower than those for individual or direct pay policies Insurance companies may still use experience rating to charge higher prices to higher-risk groups Disadvantages of employer-based insurance When health insurance is tied to employment, job loss involves the risk of losing access to affordable health insurance The tying of health insurance to employment reduces labor mobility and results in what is considered to be job lock Tax treatment of employer-based health insurance 10 / 17 Guochang Zhao RIEM, SWUFE The market for health insueance

16 Community-based health care insurance Depending on the contexts, it is also called microinsruance, community health fund, mutual health organization, rural health insurance The community-based health care insurance grew quickly in some developing countries In western Africa, there was 199 community-based health financing program, while this number increased to 585 (WHO, 2004) 11 / 17 Guochang Zhao RIEM, SWUFE The market for health insueance

17 China s health care system and health care insurance China: a dual-sector society Except for several episodes, economic, education and social welfare policies in China have been preferential towards urban areas during the past 60 years Since 1980s, the provision and financing mechanisms of health care changed Before 1980, there were three main types of health care financing system in China The labor insurance scheme The public service medical scheme The cooperative medical scheme Public state-owned and collective-owned hospitals and health facilities In 1980s, the main change happened to the cooperative medical scheme in rural areas 12 / 17 Guochang Zhao RIEM, SWUFE The market for health insueance

18 The cooperative medical scheme (CME) in rural China In 1955, China established a three-level medical care system Barefoot doctors ( 赤脚医生 ) Health clinics in towns and townships ( 乡镇卫生院 ) Hospitals in counties ( 县医院 ) Two points needed to emphasize: Diseases prevention is the first priority Integrated traditional Chinese medicine and Western medicine Fundings: Household: 05%-2% of the annual income, around 4-8 yuan per person a year Collective: provide 30%-50% of the fundings Subsidies from the upper governments: mainly used to purchase equipments and pay for the salaries of medical staffs 13 / 17 Guochang Zhao RIEM, SWUFE The market for health insueance

19 14 / 17 Guochang Zhao RIEM, SWUFE The market for health insueance

20 于是我去了大医院 大医院固然大, 但挂号处的窗口却皆如鼠洞, 勉强可以伸进去一只手 交完挂号费后, 久久等待, 里面竟无动静 探身着个仔细, 冷不防伸出一只白掌, 全身奇痒已被吓去一半 填完单子, 塞给那白掌, 缩回去后, 里面又没了动静, 大半天才飞出几枚硬币找于我 韩寒 求医??? 15 / 17 Guochang Zhao RIEM, SWUFE The market for health insueance

21 The cooperative medical scheme (CMS) in rural China Grew quickly in the 1960s and 1970s About 10% of villages were covered by CME in 1958 In 1968, CME covered 80% of villages, and even reached to 90% The rural-urban gap in medical care supply reduced rapidly Beds in city hospitals were three times of those in county hospitals in 1952 In 1970s, beds in county hospitals had been more than those in city hospitals The numbers of doctors in county hospitals were also greater than that in city hospitals in the 1980s Since the 1980s, the things changed to the opposite side: In 1986, only 48% of villages had CMS The numbers of doctors and medical institutes also reduced in counties 16 / 17 Guochang Zhao RIEM, SWUFE The market for health insueance

22 The reasons of collapse of CME in rural China Supply side: The establishment of household contract responsibility system ( 家庭联产承包责任制 ) and the collapse of people s commune ( 人民公社 ) The increase in the agricultural products The decentralization of fiscal system: the reduction of governmental subsidy in rural medical care Demand side: The medical care serviced provided by barefoot doctors could not match with the needs of some peasants Market-oriented reform: the flow of medical care resources to rural areas were due to political pressure Corruption 17 / 17 Guochang Zhao RIEM, SWUFE The market for health insueance