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Social-Private Insurance Coexistence and Interactions

Social-Private Insurance Coexistence and Interactions. Challenges for Public Policy April 23, 2004 Cristian Baeza The World Bank. The Urgent Need for Risk Pooling, including Health Insurance Private and General Tax Health Financing Per regions, 1997.

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Social-Private Insurance Coexistence and Interactions

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  1. Social-Private Insurance Coexistence and Interactions Challenges for Public Policy April 23, 2004 Cristian Baeza The World Bank

  2. The Urgent Need for Risk Pooling, including Health InsurancePrivate and General Tax Health FinancingPer regions, 1997

  3. Most of the Time countries do not have the option to choose one or the other(Financing) Private Financing (Mostly Out-of-Pocket) Social Insurance MoH

  4. Spreading Risk CROSS SUBSIDIES FROM LOW TO HIGH RISK Equity CROSS SUBSIDIES FROM RICH TO POOR Rich Contribution Contribution High Risk $ Low Risk Poor Contribution Contribution $ Low Risk High Risk Rich Poor

  5. Most of the Time countries do not have the option to choose one or the other(Population) NHS Social Insurance Individual Insurance

  6. Population Coverage(Nominal) Formal Workers Informal Workers Rich Poor MoH NHS Social Insurance Individual Insurance Out-of-Pocket

  7. Opening Private Insurance competition? NHS Social Insurance

  8. Most of the Time countries do not have the option to choose one or the other(Nominal Coverage) NHS Social Insurance Individual Insurance

  9. FONASA and ISAPREs Population by income of principal (1994) Source: ISAPRE Association and FONASA, 1995 % of all formal workers in the income category

  10. Why does this happen? • Private v/s social is not the key discussion • There is increasing participation of private management of social insurance schemes • The real issues: • What are the intrinsic design features of the schemes in dealing with the need for cross-subsidization among their participants? • How countries mandate management of public subsidies • How countries regulate all type of insurance schemes? • Mandated minimum benefit package? • Sources of cross-subsidies • Basis for Premium / contribution determination • Consumer protection • Governance

  11. The Need for cross-subsidies

  12. Different Populations Population with sufficient contributing capacity but which does not participate in any system either due to supply, demand or context barriers for existence of insurance Population that participates in formal social protections arrangements but its risk become larger than its capacity to contribute Population with insufficient contributing capacity to finance fair and adequate coverage.

  13. Scheme Management of the Need for Cross-Subsidies • Alternative approaches: • Cross-subsidization within the scheme risk categories only (risk rating) • Cross-subsidization among all participants of the scheme • Public Subsidies

  14. Risk Rating MHP $ Premium A Age

  15. Premium determinants Administrative Costs P$ = (Pe*p*q) + (FC+MC+CC+IC) + Tx + Pro + e Actuarial Cost FFS Size of the Risk Pool Competition Size-Reinsurance Service utilization information

  16. Premium determinantsPotential Strategies Insurers P$ = (Pe*p*q) + (FC+MC+CC+IC+Cp) + Tx + Pro + e Competition Uncertainty/variance adjustment Size-Reinsurance Access/Under Service Cost Control and quality Risk Selection Adverse Selection Service utilization information Income Cream Skimming

  17. Cross Subsidies in Traditional Social Security in health

  18. Social Insurance: Generating the subsidy in the absence of Mandatory Minimum package $ MHP A Pay-role-tax Actual demand of services tiempo

  19. FONASA and ISAPREs Population by income of principal (1994) Source: ISAPRE Association and FONASA, 1995 % of all formal workers in the income category

  20. Age structure, Chile and ISAPREs, 1994.(excluding population under 20 yr.) % of total Total population Total Beneficiaries

  21. Gráfico 6 Fragmentacion del sistema de protección social en saludArgentina: Población desglosada por ingreso en el sistema de salud (1997) Quintil de ingreso Fuente: SIEMPRO, 1997

  22. Private - Public Interaction Market Command and Control NHS and Population based Social Insurance Individual Private Insurance Insurance Private Provider Demand side provider financing mechanism Provision Public Provider Supply Side provider Financing Mechanisms

  23. Key Policy Definitions • Private participation in health insurance • In managing social health insurance as part of a multiple insurer social security system? • In introducing private risk-rated insurance? • Insurer Regulation (both social and private) • Mandated minimum benefit package • Sources of cross-subsidies • Inter-pool (risk equalizations funds?) • Intra-pool (community risk rating?, open enrolment?) • Health savings accounts? • Public subsidies? • Basis for Premium / contribution determination • Consumer protection • Solvency margins and technical reserves; plan comparability, etc • Governance • Management of public subsidies • Demand or supply side

  24. Social-Private Insurance Coexistence and Interactions Challenges for Public Policy April 23, 2004 Cristian Baeza The World Bank

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