Somil Nagpal With Pablo Gottret. The World Bank

Transcription

1 Somil Nagpal With Pablo Gottret The World Bank

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3 Source: National Health Accounts, WHO, 2009

4 Evolution of Health Financing Systems Low Income Countries Patient Out-of- Pocket Social Insur Gov t Budget Community Financing Middle Income Countries Priv. insur Patient Outof-Pocket Social Insur Gov t Budget High Income Countries Patient Outof-Pocket Gov t Budget National Health Service Model Mandatory Health Insurance Model Private Insurance Model

5 What is Health Insurance A way to distribute the financial risk associated with the variation of individual s health care expenditures by pooling costs over time (pre-payment) and over people (pooling) (OECD 2004). Private Health Insurance: Coverage of a defined set of health services financed through private payments in the form of a premium to the insurer. The insurer, a non-governmental entity, assumes much or all of the risk for paying for those services

6 What do We Mean by Risk Pooling? Cross-subsidy from low-risk to high-risk (risk subsidy) Cross-subsidy from rich to poor (equity subsidy) Cross subsidy from productive to non-productive part of the life cycle Low risk High risk Poor Rich Produ ctive Nonproduc tive Health risk Income Age Source: Baeza, World Bank

7 Government Share of Total Health Spending and the Budget Relative to Income Government health spending (% of budget) Government Share of Health versus Income, 2007 Government health spending (% of THE) Government health spending (% of budget) Bhutan Maldives Nepal Bangladesh Sri Lanka Nepal Bhutan Bangladesh Maldives Sri Lanka India India Pakistan Pakistan GDP per capita, US$ GDP per capita, US$ Source: World Development Indicators, WHO, & Royal Monetary Authority, 2009 Health expenditure data are preliminary as of May 2009 Note: log scale Source: World Bank

8 Out-of-Pocket Spending as a Share of Total Health Spending Relative to Income Out-of-pocket health spending vs income, 2007 Pakistan Bangladesh India Nepal Sri Lanka Bhutan Maldives GDP per capita, US$ Source: World Development Indicators, WHO, & Royal Monetary Authority, 2009 Note: log scale Source: World Bank

9 Mozambique Tanzania Zambia Mali Malawi Uganda Nigeria Kenya Thailand Malaysia Philippines Indonesia China Vietnam India Cambodia Colombia Costa Rica Bolivia Peru Nicaraugua Guatemala El Salvador Ecuador 100% Increasing Pooled Financing as Countries Move to Middle Income Africa Asia Latin America P rivate Out-of-Pocket 80% 60% Private Insurance Other Pri. 40% 20% v P ublic Social Insurance General Revenue 0% Source: WHO Source: WHO

10 Rising Interest in Social Health Insurance: But are the real goals clear? Better financial protection? Mobilizing more money? Controlling costs? Covering more people? Improving access or delivery of health services?

11 Accountability & Governance in Social H I Accountability to: Beneficiaries Government, Supervisors, Regulators Employers & other non-beneficiary contributors 5 Governance dimensions: Coherent decision-making structures Stakeholder participation Supervision and regulation Consistency and stability Transparency and information Social Health Insurer

12 Dimensions and Features of Governance in Social H I Dimension Coherent decisionmaking structures Stakeholder participation Features 1. Responsibility for MHI objectives must correspond with decisionmaking power and capacity in each institution involved in the management of the system 2. All MHI entities have routine risk assessment and management strategies in place. 3. The cost of regulating and administering MHI institutions is reasonable and appropriate. 4. Stakeholders have effective representation in the governing bodies of MHI entities Transparency and Information 5. The objectives of MHI are formally and clearly defined. 6. MHI relies upon an explicit and an appropriately designed institutional and legal framework 7. Clear information, disclosure, and transparency rules are in place. 8. MHI entities have minimum requirements in regard to protecting the insured Supervision and regulation Consistency and stability 9. Rules on compliance, enforcement and sanctions for MHI supervision are clearly defined. 10. Financial management rules for MHI entities are clearly defined and enforced. 11. The MHI system has structures for ongoing supervision and monitoring in place. 12. The main qualities of the MHI system are stable

13 Two Broad Lessons of Governing Mandatory Health Insurance Number of Insurers: With multiple and competing insurers, external oversight mechanisms can pay less attention to efficiency and management, and focus more on consumer protection, inclusiveness, and preserving competition through anti-trust actions. By contrast, countries with a single health insurer need external oversight mechanisms that make the insurer accountable for integrity, quality, and productivity. Provider-Payer Relationship: Determine whether this relationship is antagonistic or collaborative. When providers are direct employees of insurers, the character of negotiations and oversight needs to address civil service and labor regulation issues Countries with independent providers need governance mechanisms for transparent negotiations over prices and payment mechanisms

14 Is Private Health Insurance an Option? Largest use is in managing delivery of employers health programs for staff e.g. US For creating and managing provider networks for health services delivery both public and private sector clients. Contributes to consumer choice. Where public sector is involved from an Equity perspective, and directly contracting private hospitals, can bring in private insurers to manage contracts/ payments/ delivery of demand side subsidies Countries with no or poor social security/ safety net systems- individuals resort to Pvt Health Insurance for protection e.g. South Africa, India. Even for the poor, pooling over time is an option. To provide services not covered (or covered to a very limited extent) in public health system e.g. UK-NHS, Canada.

15 Types and Characteristics of Private Health Insurance Primary: when it is the only form of health insurance available to an individual. e.g. US Duplicate: offers coverage for health services that are included under a public program Complementary: covering all or part of the costs not otherwise reimbursed Supplementary: coverage for health services that are not covered by a public program e.g. Canada, Switzerland, UK.

16 Market Failures in Private Health Insurance Information Asymmetry: Insured often does not understand the Insurer s capabilities, or the exact interpretation of his contract- insurer/agent may promise the moon. Insurer may not know the exact risk status of a proposer Risk Selection: Insurer s preference for lower risk proposers and reluctance to insure those with high risk. Moral Hazard Demand Side: Consumers seek or accept more health care services than they would if they did not have health insurance Supply Side: Health providers give more (or more expensive) services than they would if the individual did not have health insurance

17 Risk Management Functions for a Private Health Insurer There are various risks an insurer is required to manage, and to manage these effectively requires regulation. While self regulation has been stated as an option, the incentives to manage risk are different from a regulator s perspective, and perhaps more effective. insurance risk arising from underwriting practices and risk appetite of the insurer. In health, each risk by itself is not very large but risk of concentration and reckless underwriting can create trouble. Reinsurance mitigates this risk. investment risk depends on mix of investment options, extraneous economic factors etc. Even if good quality assets, holding long term debt can lead to Liquidity risk. Complex products may be very risky as happened with AIG. credit risk- if any default by providers, suppliers, reinsurers liquidity risk- even if profitable, can have asset-liability mismatch business environment risk- policy environment, economic environment etc operational and other risks including frauds, technology, HR etc And these risks are not discrete- they overlap and interplay

18 Monitoring and Governance Functions of Top Management Institutional failures are, in general, caused by lax management, weak corporate governance, poor central controls and supervision, unsound accounting systems and other infrastructure compounded by weaknesses in the legal framework (IAIS, 1997) A study of 21 companies in financial trouble found that management issues were at the root of the problem (Lorent, 2008 citing Ashby, McDonnell and Sharma, 2002) The complexity of health insurance business, the multiple risks which health insurers manage, and the market failures in the sector, all require a very effective top management role. When regulator mandates a particular level of corporate governance, level of regulatory involvement can decrease. Mechanisms like independent directors, actuaries, internal auditors etc are often required (but did not work in the case of AIG).

19 Objectives of Regulation Safeguarding against systemic risk and instability (Systemic instability); Protecting consumers against opportunistic behaviour by suppliers of financial services (Market misconduct and anti competitive behaviour); Enhancing the efficiency of the financial system (Information asymmetry); Achieving a range of social objectives.

20 Need for Regulation of Private Health Insurance The complexity of health insurance business makes it very vulnerable to the effects of poor corporate governance. Regulation prevents, monitors and brings corrective changes. Market Failures in Health Insurance require regulatory intervention e.g. to harmonize/achieve desired social objectives, most notably equitable access to health insurance Even when strong, self regulation may not work where it comes at a price to be borne by the industry. Need for standards and benchmarks that attempt to correct inefficiencies and disaggregated efforts Regulation is key to customer s confidence in the promise of health insurance. Regulator has different incentives than the insurers and thus can be more effective in these respects. Welfare loss to society from absence of regulation could be greater than the aggregate costs in compliance of regulations.

21 Why A Failed Health Insurer has Major Repercussions Insurer sells a promise - consumer s trust in insurer keeping the promise is paramount Policyholder has longer term expectations for continued coveragedifficult to switch insurers as that entails loss of benefits: - Policyholders in need of ongoing medical care may lose coverage because of the insurer s failure - New insurers can decline those who present a higher risk of making claims or exclude certain conditions - Health insurance coverage is otherwise richer as the person keeps being continuously insured

22 Regulatory Structure Statutory Base: Legal sanctity, independent financing sources and adequate teeth for the regulator Administrative Location: Office within a Health or Insurance Agency: Small country context with limited regulatory manpower, or Dealing with integrated insurers which have non-health businesses Independent Health Insurance Agency Licensing and Registration: Management background and integrity, financial strength, business plans Financial Regulation: Prudential regulations, Accounting Rules, Reporting requirements, Monitoring Product Regulation Filing/approval requirements, transparency and fairness requirements Price Regulation Market Conduct Examinations Enforcement: Essence of regulation- all regulations and monitoring systems are meaningless without enforcement.

23 Prudential Regulation Licensure requirements are designed to provide a minimum assurance to consumers of the financial soundness and management integrity of the private health insurer with which they are dealing Qualification and background requirements for key officials, intermediaries, agents to ensure knowledge and integrity Reporting and Filing Requirements for ongoing monitoring by the regulator, including financial reporting, products, reinsurance etc

24 Prudential Regulation tools available to the Health Insurance Regulator Licensure requirements for insurers and intermediaries Detailed framework for licensing Owners, risk management, capital, business plan, key personnel, offices Approval of Health Insurance Products and Contracts Prior Approval/ File and Use/ No Filing Requirement / Filing Upon Request Solvency Requirements Initial Capital Requirements Technical Provisions (Reserves) Ongoing Solvency Requirements (Solvency Margins) Off Site Monitoring Various MIS Reports, Accounts, Reinsurance contracts, Outsourcing arrangements On Site Inspections: Verify reports, check internal controls, market conduct

25 Consumer Protection Does the consumer understand the product bought? Product variety available and features thereof have increased in number and complexity- e.g. over 300 in India, thousands in Chile. Concerns on consumer understanding of product scope and options. 25

26 Customer Protection Regulations A key role for the regulator, especially in retail health insurance ( unequal parties). However, also requires balance of consumer protection and industry s viability. Access Requirements like Guaranteed issue or variants thereof, for some or all products in the market Renewability and Cancellation provisions, including guaranteed renewability, disclosures on renewability Portability across insurers, including creditable coverage from earlier insurers Product terms and conditions Standard products- or minimum benefit coverage mandates Standardization of definitions and terms Caps on waiting periods and cost sharing provisions Requirements for fairness, transparency, disclosures Prevention of mis-selling and other market conduct issues Grievance redressal discussed in next slide.

27 Grievance Redressal Often multiple channels exist Insurer s internal review and grievance mechanism Regulator s review and monitoring mechanisms External Reviews or Ombudsman mechanisms Consumer law, competition laws, company laws Contract law and judicial mechanism Onus on regulator to co-ordinate, monitor and intervene where necessary Grievance redressal is important for consumer s confidence in insurance Grievance channels also serve as Eyes and Ears of the regulator.

28 Enforcing Regulations Drafting and promulgation of regulations is not enough, and enforcement is key to achieving regulatory objectives Enforcement begins with careful off-site monitoring supplemented by on-site visits as necessary Effective action for breaches or violations is key to prevention of such breaches or violations by the same and other entities- shows that the regulator means business. Can include: Restricting business activity or activities Levying fines and penalties Ordering removal/ change of personnel Issuing warnings Appointing Liquidator/ Observer/ Administrator etc.

29 Partners in Regulation No single actor can do it alone! Public Sector Private Sector Individuals and Households Better Financial Protection In Health NGOs and International Partners Insurers

30 Co-ordination role The regulator, MOH, insurers and Health providers have important roles to play in H I. The regulator has an important co-ordination role in the process MOH: regulating providers, enabling legal framework, Quality issues Insurers: Developing standards and benchmarks Health providers: Participating in dialogue on Quality, costs and operational issues

31 Where to Draw A Line. Regulatory Limits Waged with lawful authority Grounded in just cause Informed by righteous intention The last resort including the first resort when no other remedies are available; Just i.e. embarked on with reasonable chance of success; Discriminating and Proportional Adapted from Aquinas

32 Thank You. Disclaimer: Views and estimates, if any, in this presentation are of the author in his personal capacity and do not represent those of any organizations with which the author is currently or previously affiliated. 32