DR RASHMI KUNDAPUR
ADDITIONAL PROFESSOR,
DEPT OF CFM, AIIMS Hyderabad
S
Basic assumptions underlying
health insurance theory
● The probability of illness (p) and the expected cost of
illness (E) for the target population are known to the
insurer;
● p < 1;
● p is not known to the insured;
● p is independent for individuals in the target population
(i.e. risk of illness is not covariate);
● Occurrence of illness will not benefit the insured party;
Health insurance players &
process
Source: DfID 1998
Difficulties in implementing
insurance in developing countries
Difficult to extend coverage under any kind of insurance:
● In a poor country, absolute scarcity of resources may limit
resource mobilization
● Expensive and difficult to administer schemes (esp. among
rural informal sector)
● Limited management capacity for developing and
administering schemes (e.g. actuarial skills, strategic
purchasing skills)
Many non-financial barriers that prevent health care utilization,
even among the insured
Improved efficiency hampered by moral hazard and adverse
selection
Demand-side moral hazard
● The tendency of individuals, once insured, to behave in such a
way as to increase the likelihood (or size) of the risk against
which they have insured
● Ex-ante and ex-post
Interventions against moral
hazard
Cost sharing
● Deductibles
● Co-insurance
● Fixed indemnity
Supply restrictions and rationing – e.g. managed care, health
maintenance organizations
Supply-side moral hazard
● Economic theory assumes independence of demand and supply
● But, in most systems (esp. when provider paid by fee-for-
service) doctor has incentive to increase supply (and unit cost)
● Insurance liberates provider from having to worry about
patients’ limited resources
Adverse selection
● Information asymmetry – consumers have a better idea as to
their own “p” than do the insurers
● High risk individuals (e.g. elderly, those with chronic illness)
more likely to join insurance schemes than those at low risk
● Results in higher rate of events than anticipated by the insurer,
and ultimately in higher premiums
Interventions against adverse
selection
● Compulsory membership
● Group / family membership
● Waiting period between enrolment and eligibility for benefits
● Risk rating
● Insurance schemes are in general fraught with
problems related to cost-escalation and quality of
care.
● Where fee-for- service system used for paying
providers, results in unnecessary procedures and
prescriptions.
● Where capitation system of payment for providers
used, quality of care tends to be compromised, and
high-cost procedures are often postponed.
● Social Insurance Schemes –great difficulty in enrolling private
sector and informal sector employees.
● Social insurance schemes based on payroll deductions
exclude large numbers of women not in formal employment;
even for women enrolled in these, routine contraceptive and
delivery care is often not included.
● Ravindran TKS. Health financing reforms in “The Right
reforms? HSR and sexual and reproductive health”.
● SOME SLIDES ON USER FEES AND INSURANCE TAKEN
FROM
● An introduction to health insurance. Kent ranson, June 2009
● Private insurance is designed mostly for low-probability, high-cost health
events, and would therefore find it economically unviable to provide
routine preventive care and also delivery and contraception.
● Exclusion of precisely those people who need care most: those with ‘pre-
existing’ conditions, older person and others deemed to be ‘high risk’ e.g.
those who have had a previous c-section, those who have reported
domestic violence-related injury to the health system
● ‘Gender-rating’ followed in many countries: women have to pay a higher
rate of premium than men in the same age group
Community-based health
insurance schemes
Fixed sum of money collected from members of a
community
● Payment entitles members to access specific services or
drugs
● Is meant to increase access to care by not requiring
people to pay at the time of receiving treatment
● May or may not provide financial protection
Skills of good interpersonal
communication
● Types
● Caring
● Problem solving
● Counselling
Techniques
● Effective questioning
● Active listening
● Reflection or echoing
● Summarising and paraphrasing
● Praise and encouragement
● Giving information