• clearly defined earmarked resources;
• complex administration, relatively high costs;
• can mobilize additional resources for the health sector.
As you have seen in earlier chapters, redistribution is based on the notion of equity and seeks to transfer income or wealth from the rich to the poor. Social insurance is based on redistributional policies to equalize the financial burden of health care and to ensure access to care on the basis of need and not on ability to pay. The main difference between social and private insurance is the extent of the redistri- butional intention of the former. Social insurance aims at four means of cross- subsidization:
1 from the healthy to the ill: contributions regardless of individual risk;
2 from the young to the old: smaller contributions from the elderly;
3 from the rich to the poor: contributions are a fixed percentage of earnings;
4 from singles to families: equal contributions regardless of the number of dependants.
Note that private insurance offers risk sharing only between the healthy and the acutely ill. The extent of additional cross-subsidization may vary between social insurance schemes and there is also variation in a number of other aspects, such as:
• Coverage: social insurance may either cover part of the population (Latin Amer- ica) or the whole population (Canada). High earners may be allowed to insure privately if their earnings are above a defined income (Germany).
• Subsidies: governments may subsidize social insurance funds to keep contribu- tions affordable for the poor.
• Number of funds: social insurance systems may consist of several funds or a single fund for the whole population.
• Contributions: usually compulsory, payroll deducted, progressive with income, but voluntary contributions and flat rates are also possible.
• Ownership of health care facilities by social insurance agencies is uncommon though agencies in Latin America act as providers as well as purchasers of health care.
• Benefit package: may vary between basic and comprehensive health care and include benefits in cash and kind.
Activity 15.1
Focus on the advantages of social insurance and answer the following questions:
1 What do you think might be the advantages of a large single insurance fund (rather than lots of small ones) when contracting with providers?
2 How might adverse selection or cream skimming (avoiding accepting unhealthy, high risk people) be counteracted in social insurance systems?
3 Imagine a country with several social insurance funds which are subject to govern- ment regulation. What provisions would government need to take to avoid adverse selection?
Feedback
1 Large social insurance funds can (in theory) exert their monopsony of buying power and thus determine what services are provided, reducing the risk of supplier induced demand.
2 By having a single, monopolist fund. As only one organization has the obligation to cover the entire population, there is no opportunity to exclude bad risks.
3 Regulation needs to ensure that all social insurance funds take on all applicants and offer the same benefit package. They should be encouraged to contract jointly with providers. For example, Germany’s 500 social insurance (or sickness) funds are regu- lated in this way and, additionally, money is transferred from funds with good risks to funds with bad risks, to equalize the distribution of available resources.
Activity 15.2
This activity lets you assess the differences between private and social insurance by using an example from the German health care system. In that country 90 per cent of the population are covered by social insurance and only those above an annually determined income level can insure privately (Schulenburg 1994). Table 15.1 compares the terms of social and private insurance.
Table 15.1 Contract terms of social and private health insurance
Terms of contract Social health insurance Private health insurance
1 Enrolment Compulsory Voluntary
2 Right of insurer to refuse insurance
No Yes
3 Coverage of pre-existing conditions
Yes No
4 Waiting times Not applicable 3 months in general, 8 months for pregnancy and dental prostheses 5 Co-payments Drugs, hospital care, dental
care
Dental care 6 Contributions/premium A fixed proportion of
income
Varying with age, sex, health status and benefits scheme 7 Insurance of family
members
Covered Not covered, additional
policies required
8 Elderly Lower contributions Increasing premiums with
age
9 Home care, rehabilitation Covered Not covered
10 Sick payment Covered Additional policy required
11 Private care Not covered Covered
Source: Schulenberg (1994)
1 Study Table 15.1 and identify those terms of contract that are controlling for moral hazard and adverse selection.
2 Assess differences between the schemes with regard to redistributional policies.
3 What differences can you identify between services included in the social insurance benefit package and those offered by private insurance?
Feedback
1 Numbers 1–4 relate to terms controlling for adverse selection. Unlike private insur- ance, social insurance cannot refuse to take on bad risks. With private insurance, waiting times apply before a subscriber is entitled to benefits. Co-payments are used under both schemes to reduce moral hazard.
2 Social insurance subsidizes services for low earners, families and elderly people.
3 Social insurance also covers non-medical benefits like home care, rehabilitation and sick payment whereas private insurance includes private consultations and additional hotel services in hospitals.