Private health insurance: second-best or second-worst solution? Sarah Thomson EHMA VHI MASTERCLASS Milan, 27 June 2013

Private health insurance: second-best or second-worst solution? Sarah Thomson EHMA VHI MASTERCLASS Milan, 27 June 2013

VHI as a policy tool Policy goals Research findings Policy design Regulation Over to you

Policy goals

Policy goals for VHI relieve fiscal pressure without undermining access address gaps in coverage keep the rich happy other goals? Insurance trumps out-of-pocket payment!

What role for VHI? Market driver VHI role VHI covers Examples population coverage substitutive groups excluded or opting out Germany service coverage complementary (services) excluded services Netherlands cost coverage complementary (user charges) statutory user charges France consumer satisfaction supplementary faster access & consumer choice Ireland Role matters: interactions, regulation, impact on health system performance Source: Mossialos and Thomson (2004), Foubister et al (2006)

Is VHI the right policy tool? does it cover important gaps? do those who need it have access to it? does it undermine value in public spending on health? does it make those who rely on statutory coverage worse off? does it contribute to achieving health system goals?

Research findings

Key research findings large variation in VHI role, policy design, market size, impact across countries complex interactions with publicly financed care, importance of context generally unlikely to relieve fiscal pressure policy design as important as regulation great expectations not backed by evidence Source: EC 2002, OECD 2004, EC 2009, Thomson and Mossialos (eds) 2013 forthcoming

Very few large VHI markets globally Countries in which VHI = >10% of total health spending (2009) Source: WHO data

France Slovenia Germany Ireland Cyprus Neths Spain Austria Belgium Portugal Lux Malta Hungary Greece Finland Denmark UK Italy Latvia Lithuania Bulgaria Estonia Sweden Czech Poland Romania Slovakia Source: Thomson and Sagan 2013 forthcoming Large variation in market size: spending & coverage 100 90 80 70 60 VHI as % of total health spending, EU 2009 % of population covered by VHI, EU 2009 50 40 30 20 10 0

Source: WHO data VHI ranked by % of private spending on health (from low to high) in 2009 shows VHI does not do well in filling gaps in coverage economic crisis has not changed this

VHI may undermine health system performance Draws resources from public system: risk segmentation skews distribution of public resources tax subsidies not self-financing Conditional sale restricts choice of insurer Little evidence of superior efficiency of private insurers (administration, purchasing) Source: Thomson 2013 forthcoming, Thomson and Mossialos (eds) 2013 forthcoming

Source: Mielck and Helmert 2006, Schneider 2003, Lungen et al 2008 Risk segmentation (Germany) Prevalence of: Public plan VHI People aged 65+ 22% 11% Chronic disease* 23% 11% Self-reported poor health* 21% 9% GP contact* 81% 55% Specialist contact (outpatient) 47% 45% Difficulty paying for outpatient Rx* 26% 7% Waiting time for gastroscopy 36 days 12 days *Statistically significant after controlling for differences in age, gender and income

Source: Perronin et al 2011; data for 2008 Skewed distribution: variation in health status by VHI status (France) VHI CMU-C VHI No VHI 45 40 35 30 25 20 15 10 5 0 Average to very poor health Chronic condition Functional limitation

Source: Perronin et al 2011; data for 2008 Skewed distribution: variation in use of health care by VHI status (France) VHI CMU-C VHI No VHI 90 80 70 60 % visiting a GP or specialist or foregoing care in the last 12 months; % visiting a dentist in the last 24 months 50 40 30 20 10 0 GPs Dentists Specialists Foregone care

Source: Thomson and Mossialos 2009; data for 2006 VHI admin costs as % of premium income 40 39 35 33 30 % 25 20 15 12 14 15 17 18 20 20 21 25 25 25 10 9 5 4 5 0 IT NL IE US AT PT UK EL DK FR SI FI LU ES DE PL

Risks with VHI VHI may not address important coverage gaps and may create new challenges VHI may exacerbate fiscal pressure (especially substitutive VHI) VHI may undermine value in public spending the larger the market, the larger the challenges Source: Thomson 2013 forthcoming, Thomson and Mossialos (eds) 2013 forthcoming

Policy design

Design issues what role for VHI? who should offer VHI (and will they want to)? how to ensure take up / accessibility? how to regulate the market? how to avoid undermining value in public spending?

Regulation

Regulatory goals, approaches, examples Goal Approach Examples Consumer protection Financial solvency margins reporting requirements Material marketing practice relations with providers Access Material open enrolment lifetime cover community rating premium review, approval, caps mandated (minimum) benefits prohibit exclusion of preexisting conditions Source: Chollet and Lewis 1997

Is regulation for access necessary? Is VHI covering important gaps in coverage? NO? Then focus on consumer protection: transparency, product differentiation YES? Then who should regulate what and how? Nature of regulation affected by role, market structure, politics, capacity, legal constraints Source: Chollet and Lewis 1997, Thomson and Mossialos 2009

So what to do? DON T think of VHI in isolation DO anticipate interactions with the health system DO focus on design not just regulation DO match regulation to role and goals DO anticipate constraints to regulation DO monitor the market and its effects

Over to you

Key messages Caution: expectations not generally matched by evidence Clarity about policy goals Complementarity: how best to combine public and private resources to achieve goals Careful policy design: align incentives; anticipate and minimise risks Capacity for regulation and oversight

Who should regulate what? Ministry of Finance or Ministry of Health? MOF in most EU countries (national financial market authority) but health expertise vital Health-specific regulation of for-profits is rare (Finland, Ireland, Spain, Italy, Slovenia only) Same framework for all insurers? Separate framework for non-profits in some EU countries (Belgium, France, Ireland, Lux) is problematic National regulation does not go beyond EU requirements (solvency) in half of EU countries Source: Thomson and Mossialos 2009

Access rules in EU VHI markets Regulation Open enrolment, lifetime cover Prohibition of age limits Community-rated premiums Risk equalisation Premium caps Cover of pre-existing conditions Minimum benefits User charges cap Countries Belgium, Ireland, Slovenia, Germany (basic substitutive policy only) None Non-profits only: Belgium, Estonia, Hungary All: Ireland, Slovenia Ireland, Slovenia Germany (basic substitutive policy only) Non-profits only: Belgium All: Ireland Ireland, Germany (basic policy only) Germany (basic policy only)

Alternatives to access rules norms: historical patterns of behaviour (France), voluntary agreements (Netherlands) market structure: restrict market entry, allow public insurer(s) to sell VHI (Slovenia) financial incentives: tax exemptions (France) differential treatment of insurers outlawed under EU law market maturity and incentive environment a better predictor of insurer behaviour than legal status Source: Thomson 2013 forthcoming

Substitutive VHI? Requirements design: exclusion not opt out regulation: for affordable access political will Risks risk segmentation + loss of contributions = no fiscal relief financial protection + equity concerns EU legal challenges A near extinct species! Regulation intensified in Netherlands, Germany

Complementary VHI covering user charges? Requirements high user charges regulation (& subsidies) for affordable access how to avoid undermining value in public spending? Risks financial + equity + efficiency concerns EU legal challenges to public policy to secure access (France, Slovenia) Large markets very rare! Regulation has intensified over time

Complementary VHI covering excluded services? Requirements technical, financial resources for priority setting, HTA political will to define statutory benefits Risks no market will develop financial protection + equity concerns (Canada) conditional sale undermines competition (Netherlands, Switzerland) Large markets very rare! Insurers may not develop products unless there is significant population coverage to spread risk

Source: Monheit 2003 and Berk and Monheit 2001 Distribution of US health spending 0% 1% 5% 10% $56,459 27% 50% 50% 55% Average annual expenditure 69% 100% US population $155 97% Total health expenditure

Some basics Uncertainty and insurance insurance trumps out-of-pocket payment Value-based insurance design it does not make economic sense to deter people from using high-value care value should be clearly signalled Policy design aligning incentives

Questions for discussion What role should VHI play? Who should offer it (i.e.: the type of actor, such as statutory, private, voluntary)? How to support uptake in practice (thinking about why existing needs aren't being met through VHI at the moment)? and on this basis, what regulation is needed to make it work? 35