Social Health Insurance Dr Kambiz Monazzam May 12-15, 2005 Khoramabad – Lorestan

Goals of This Session Provides an overall context that gives rise to Social Insurance Provides an overall context that gives rise to Social Insurance Introduce market and government failures that the design of a Social Insurance program should consider Introduce market and government failures that the design of a Social Insurance program should consider Introduce the essential characteristics of Social Insurance Introduce the essential characteristics of Social Insurance

At Personal Level At Personal Level At Social Level At Social Level ISK RISK

Savings Barrowing Family/ Friends Help Charity Insurance RISK RISK And way to confront with How Do people deal with risk?

Why would people like to be insured? In which circumstances? Do people want to be insured at any risks?

Why Do Nations Consider Social Insurance? Diseases and illnesses are uncertain; serious illnesses can bankrupt families; Diseases and illnesses are uncertain; serious illnesses can bankrupt families; Health and health care are basic necessities for life, EQUITABLE access to health care is a national goal for most countries Health and health care are basic necessities for life, EQUITABLE access to health care is a national goal for most countries Insurance (pooling risks) enhance people’s well-being and prevent impoverishment Insurance (pooling risks) enhance people’s well-being and prevent impoverishment

When Insurance initiated/devised? There are great risks There are great risks People know the risks People know the risks Risk imposes great burden on individual Risk imposes great burden on individual Uncertainty at individual level Uncertainty at individual level

Health & Insurance Can’t pay the cost of cure Can’t pay the cost of cure Don’t come back to healthy state Don’t come back to healthy state Long treatment period Long treatment period Loss of work/discharge Loss of work/discharge Falling down the poverty line Falling down the poverty line

Risk Aversion: The desire to replace an uncertain loss with a steady & certain premium payment The basic Principle behind Insurance:

Insurance: Individual view: Individual view: Risk Aversion Risk Aversion Social view: Social view: Risk Pooling way Risk Pooling way Cross Subsidy Cross Subsidy Insurance: Pools the risks; but, don’t vanish or decreased it

Bilateral Exchange Model for Goods ConsumersProviders Service Money Hospitals Clinics Physicians

Government Charit y Consumers Providers Exchange Model for Goods Service User fees Payments Premiums & Taxes

Trilateral Exchange Model for Goods ConsumersProviders Service User fees Hospitals Clinics Physicians Financing Organization Treasury Taxes Premiums Payments

GOVGOV Charity Provider Consumers Insurance

Rely On Free Market For Insurance? Market and competition deal with efficient allocation of resources, not EQUITY Market and competition deal with efficient allocation of resources, not EQUITY There are serious market failures in the insurance market and in the health services markets. Regulations have not been able to effectively remedy the market failures There are serious market failures in the insurance market and in the health services markets. Regulations have not been able to effectively remedy the market failures Social insurance is a major approach to promote equity and address these market failures Social insurance is a major approach to promote equity and address these market 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 Government For Insurance? There are serious government failures:  Vested interest politics  Government operates as a monopoly  Government manages by top down hierarchy, higher ranked officials’ interests dominant over common people’s interest  Government manages by bureaucratic rules that stifle innovation and create inefficiency

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 of Social Insurance Mandatory for designated population to avoid adverse and risk selections Mandatory for designated population to avoid adverse and risk selections A social contract between government and the enrollees A social contract between government and the enrollees Eligibility for benefits require that the enrollee has paid the premium (contribution) for a minimum period. Thus SI is not a right of every citizen, and not a welfare program Eligibility for benefits require that the enrollee has paid the premium (contribution) for a minimum period. Thus SI is not a right of every citizen, and not a welfare program Financially autonomous and has to maintain its own solvency Financially autonomous and has to maintain its own solvency Benefits prescribed by law Benefits prescribed by law Benefits not directly related to contributions Benefits not directly related to contributions

Advantages of Social Insurance Pools risks widely Pools risks widely Can improve equity Can improve equity Mobilizes financial resources for health care from workers in the formal sector Mobilizes financial resources for health care from workers in the formal sector Low administrative costs Low administrative costs Can control health expenditure inflation if the program is designed properly Can control health expenditure inflation if the program is designed properly

Disadvantages of Social Insurance Requires sophisticated knowledge and organization to do it properly Requires sophisticated knowledge and organization to do it properly Alters locus of financial power and this power can be misused Alters locus of financial power and this power can be misused Can’t provide universal coverage unless the government subsidizes the farmers and workers in the informal sector Can’t provide universal coverage unless the government subsidizes the farmers and workers in the informal sector

Impacts of Social Insurance Organize and mobilize funds for health Organize and mobilize funds for health Pool risks between the healthy and the sick, cross subsidy by the high-income to the low-income Pool risks between the healthy and the sick, cross subsidy by the high-income to the low-income Can provide cost effectiveness health care Can provide cost effectiveness health care Can control health cost inflation Can control health cost inflation Can improve efficiency and quality of health care Can improve efficiency and quality of health care Potential negative economic impacts: Potential negative economic impacts: –Excess burden, labor market, price inflation

Major Planning Issues Covered population/eligibility Covered population/eligibility Enrollment/premium collection Enrollment/premium collection Benefit package Benefit package Costing/financing Costing/financing Macro organization Macro organization  Public, Semi-public, Private non-profit, for-profit  Monopoly or competition Payment system Payment system

Major Planning Issues (2) Administrative systems Administrative systems –Eligibility card and enrollment –Premium collection and accounting –Claim card –Monitoring quality and cost –Management information

Social Health Insurance History & Background: Poverty law in 19 th century Poverty law in 19 th century Saving accounts introduced by GOV Saving accounts introduced by GOV Employer responsibility for work injuries Employer responsibility for work injuries Workers help association Workers help association

Social Security history Bismarck Model (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 Insurance 1911 Total coverage Insurance 1911 Medical Care Benefits 1912 Family Law 1945 National Health System 1946 Anti poverty Law 1948 Social Security history 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) ( مزاياي بازنشستگي ) ( مزاياي از كار افتادگي ) ( مزاياي فوت ) ( مزاياي بيماري ) ( مزاياي زايمان ) ( مراقبت هاي پزشكي ) ( مزاياي حوادث ناشي از كار ) ( مزاياي بيكاري ) ( مزاياي خانواده ) R (2)

Changing Vision toward RISK REDUCTION Changing Vision toward RISK REDUCTION From Medical INS To Health INS So Can reduce the risk

Medical VS Health Medical Medical In order to cover the costs Have to increase premiums In order to cover the costs Have to increase premiums Health Health Decrease costs Decrease costs Decrease Invalidity or disease so increase quality of life & productivity Decrease Invalidity or disease so increase quality of life & productivity

When we Have a good health Insurance !? What’s Insurance sales? What’s Insurance sales? A PROMISE

SO, They know they have to do their Promise They know they have to do their Promise If they don’t do on time Somebody obliged them to: If they don’t do on time Somebody obliged them to: do the task do the task Pay penalty for loss Pay penalty for loss Pay penalty for breaking the social law Pay penalty for breaking the social law They don’t have “rich father” They don’t have “rich father”

– If NO !!! Social Health Insuranc? Do you have JOlN US JOlN US Sweden & UK have no social insurance! Make a Business!? Sweden & UK have no social insurance! Make a Business!? Why don’t you establish one? Why don’t you establish one?