Regulation of private health insurance markets in Poland

Prof. Dr. Juergen Wasem April 2001 Regulation of private health insurance markets in Poland Final Version 1 Preliminary remarks This paper is the final version of Task 4 of the (old) ToR of the project Transformation of health care system in Poland, financial aspects (IBRD Loan No. 3466 POL) and related to the issue of Regulation of private health insurance markets in Poland. A preliminary version of this paper has been prepared in February 2000 and has been accepted by the Polish side. The preliminary version has been discussed thoroughly with the local experts. Based on this discussion this revised version was prepared. According to the (old) contract for (old) Task 4, the consultant is requested to deliver the following products: a description of the other tasks of the project. This obligation has been shaped by the decision of the client and the Worldbank to elaborate a new set of Terms of Reference. In addition to being involved in that process (and commenting on the ToR as well as on activity plans related to task 4 of these ToR), the consultant has developed a detailed scheme of activities for what is considered to be a new task 3 of the new set of terms of reference. This detailed scheme of activities has been delivered already to the client on February 7 th, 2000. It is attached again as Annex to this paper. a draft report for task 4 on regulation of private health insurance. This draft report has been delivered in February 2000 and has been acdcepted by the Polish side. a final report for task 4 on regulation of private health insurance. This paper is the final report on that task. Prof. Wasem: (Old) Task 4 of Worldbank project - April 2001 page 1

2 Introduction Private health insurance can play a significant role in the process of transformation: It can ease financial pressures for the government budget or the budgets of social health insurance, because there is an additional mechanism through which money can be raised for the health sector, It can help to overcome illegal money in the health care sector because patients pay money to insurance and therefore feel that they are entitled to services. They will ask their doctors to get a receipt for the money they paid to them because they want to get a refund from their private insurance. I can support the process of privatization of health care providers, because private health care providers which might not get a contract with social health insurance can contract with private health insurance and patients might get a refund for their bills of using private health care facilities. It can allow a differentiation of preferences of consumers concerning health care services: Different health insurance policies can be signed which reflect those different preferences. In quite a number of reform countries in central and eastern Europe, the implementation of a supplemental private health insurance scheme has been identified, therefore, as a useful policy tool to support the process of health care reform. For instance in Slovenia, more than 90 % of the population have bought insurance policies of supplemental insurance, in order to cover benefits, which are not covered by the basic national insurance scheme. This positive effects will happen only, however, if private health insurance is regulated in an adequate manner. Especially, regulation has to take into account the links between the social health insurance system, which has been established in Poland and started its activities on January 1 st 1999, and private health insurance. For instance, the Prof. Wasem: (Old) Task 4 of Worldbank project - April 2001 page 2

design of the benefit package of social health insurance will be reflected in the provision of private health insurance and the necessity to regulate it. This paper therefore deals with the issue of adequate regulation of private health insurance markets in Poland. The paper is structured in the following way: chapter 3 will identify potential functions of private health insurance and will evaluate their potential role in Poland; chapter 4 will examine policy issues related to the links between private health insurance markets and governmental health policy strategies; chapter 5 will deal with the legal framework of private health insurance from the perspective of insurance business supervision and regulation. 3 Identifying potential functions of private health insurance and evaluation of their potential role in Poland In this section we first will identify typical functions of private health insurance systems (in section 3.1); we then will discuss the potential relevance of insurance of these various types for Poland (in section 3.2). 3.1 Four functions of private health insurance in different health care systems The role and functions of private health insurance strongly depends on the general structure and design of the health care system of a country. There are probably no two countries in the world with an identical role and function of private health insurance. In principle, four potential functions of private health insurance can be found in different health care systems: (1) Supplemental medical coverage in the case of exclusions of certain services and goods This function of private health insurance is relevant in case that the basic health coverage system of a country has some exclusions in its benefit package. Even Prof. Wasem: (Old) Task 4 of Worldbank project - April 2001 page 3

rather generous benefit packages of basic health coverage systems (be it social health insurance of tax financed national health services) do not cover all diagnostic or therapeutic procedures and comfort related items of health services. Typical excluded benefits are: medical care during travel on vacation abroad, cosmetic surgery, alternative healers, spa treatment, comfort services or treatment by senior consultants in hospitals, long-term care in nursing homes, pharmaceuticals and medical aids not included in positive lists, certain materials in prothetic dental care, certain types of traditional, of forinstance Chinese medicine, certain types of psycho-therapeutic treatment 1. Persons covered by the basic health care systems may want to ask for these additional services, not covered by the basic system. In case they are risk-averse they may prefer having insurance to cover these additional services in comparison to pay them cash in case an illness occurs. If private health insurance companies react to these demands, they will develop supplemental medical insurance policies, which provide coverage of those services excluded by the basic health cover system. Examples of supplemental insurance in case of exclusions in the public (health insurance) system can be found in many countries of Western Europe. (2) Residual supplemental insurance which covers user charges and co-payments of the compulsory system In most basic health care systems, governments have introduced some form of user charges, co-insurance 2 or co-payments 3 : Patients, who are covered by the basic system, have to pay this money to the health care provider (or to some other agency) when using their services. User charges or co-payments vary depending on kind of service and reimbursement principle (patient-pays principle, 1 2 3 For instance in some Western European countries only three or four types of psychotherapeutic treatment (like Freudian psycho-analysis) are paid by the public system. With co-insurance we mean a certain percentage of the costs of treatment which have to be paid be the person who is using the public system. With co-payment an absolut amount of fee (e.g. 10 Slotys) is meant, which has to be paid by the person who is using the public system. Prof. Wasem: (Old) Task 4 of Worldbank project - April 2001 page 4

third-party-pays principle). In case that people are risk-averse, they may prefer to have insurance which covers the payment of co-payments and user charges. If private health insurance companies react to these demands, they will develop supplemental medical insurance policies, which provide coverage in case of copayments in the basic scheme. Examples of residual private health insurance can be found in almost all Western countries. (3) Substitutive supplemental insurance, the coverage of which replaces basic compulsory insurance for certain groups of the population In some countries, basic health coverage systems, especially social health insurance systems, are not mandatory for the whole population. Some groups of the population (for instance defined by profession or income), or even: everybody, may have an entitlement to opt out of the basic health coverage system. Sometimes certain groups of the population (for instance defined by income) even are mandatorily excluded from the basic health insurance system. In this case, people who make usage of the opting out entitlement or who are excluded from the basic social health insurance mandatorily may, if they are risk-averse, prefer to have insurance coverage with private health insurance companies instead of paying all health care costs out of pocket. Sometimes, insurance coverage with private health insurance companies may even be a legal requirement for making use of the option to leave the basic health coverage system. If private health insurance companies react to this request of parts of the population, they will develop health insurance policies which cover the costs (or at least main parts of the costs) of all necessary health services. Private health insurance in that case is not only supplemental, but in fact is full coverage, replacing coverage by social insurance. In the terminology of the European Union, this type of private health insurance is called substitutive 4, because it serves as a substitute to social health insurance coverage. Examples of substitutive private medical insur- 4 See Article 54 of the EU Third Directive on Non-Life Insurance. Prof. Wasem: (Old) Task 4 of Worldbank project - April 2001 page 5

ance can be found for instance in The Netherlands, in Switzerland, in Germany, but also for instance in Chile. (4) Alternative supplemental insurance, which provides coverage for limitation of services in compulsory medical case systems accomplished through supply restrictions or price cuts In some basic health care systems certain services are not available, at least not within a short period of time (for instance: only after having been placed on a waiting list), although in theory these services belong to the benefit package of the basic system (they are therefore not excluded, as we have described it above). In these cases some patients might decide, to ask for these services with private health care providers parallel to the basic system, although they have paid for the entitlement to these services already once (through the tax system or through contributions to social health insurance). If they are risk averse, they might prefer to have insurance for the coverage of these parallel services. If private health insurance companies react to this demand of parts of the population, they will develop health insurance policies which cover the costs of those parallel services. This type of private health insurance is called alternative insurance (because patients are using an alternative to the health care services foreseen in the basic system) or parallel insurance (because the services used are established parallel to services of the basic system). 5 Examples of parallel insurance can be found for instance in Ireland, Great Britain or in Spain. 5 See for instance: Schneider,Markus (Ed.) (1994): Complementary Health Schemes in the European Union. BASYS, Augsburg. Prof. Wasem: (Old) Task 4 of Worldbank project - April 2001 page 6

3.2 The relevance of different functions of private health insurance for Poland In this section we will briefly examine the situation in the social health insurance system, which has been established in Poland, starting its activity in 1999, to identify, which of the different functions of private health insurance is relevant for Poland. We will then develop our recommendations. 3.2.1 Analysis (1) Supplemental medical coverage in Poland The benefit package which has to be provided either by the Polish sickness funds of the social health insurance system according to the General Health Insurance Act or which have to be paid from the Polish state budget according to special regulation is rather generous. As a consequence of this rather generous benefit package, the room for the design of policies for supplemental medical coverage by private health insurance companies, which would fill the gap, is rather limited only. At present, the following exclusions of benefits in the social health insurance scheme have been established, so only these benefits could be provided easily by supplemental private insurance: non-basic dental care services and materials (Art. 31a para 1 No. 4 in relation with Art. 31e), inoculations unless for preventive reasons and unless ordered to be paid by sickness funds by order of the Minister of Health and Social Welfare (Art. 31a para 1 No. 5 in relation with Art. 31b para 1 No. 5), extra-standard services, whose list shall be determined by a regulation of the Minister of Health and Social Welfare (Art. 31a para 1 No. 6). The experts have learned that such a list does not exists at the moment, costs of treatment abroad, unless under certain conditions (Art. 31a para 2), Prof. Wasem: (Old) Task 4 of Worldbank project - April 2001 page 7

costs of room and board of the insured in nursing and treatment institutions (Art. 31a para 3), costs of travel to and from spa treatment (Art. 48 No. 3), costs of ambulance transportation, unless it is in case of an emergency treatment or other kind of specified situation, according to a regulation in the sickness funds Articles of Association (Art. 50 No. 3). Considering the rather generous nature of the benefit package on the one hand and the rather tight budget situation of the sickness funds 6 on the other hands, the Worldbank project s experts recommend strongly, that the Ministry of Health should re-consider the existing benefit package. There are several approaches, how the design of a less generous benefit package could be achieved, which are not in the scope of this paper. 7 At least, the Worldbank project s experts recommend that the list of extra-standard services, which is mentioned in the law at present and has been implemented, should be revised thoroughly and could be extended, in order to achieve some relief from financial pressure for the sickness funds. Of course, any considerations about limitations of the social health insurance s benefit package must take into account concerns on equity and fairness; an open discussion on what is really necessary care would be a requirement for a policy of exclusion of services from the benefit package of the sickness funds. The advantages of a policy to reconsider the benefit package of social health insurance are quite obvious however: The financial capacity of the social health insurance system and its obligations to provide health care come closer together; this would support the legitimacy of the system and of the continuation of the reform process. 6 7 Poland still spends much less than other countries on health care. According to the new ToR of the Worldbank project issues concerning the benefit package of social health insurance are related to task 3 of that ToR. Prof. Wasem: (Old) Task 4 of Worldbank project - April 2001 page 8

Reconsidering the existing benefit package of social health insurance and preparing the list of extra-standard services would enable at the same time a stronger development of supplemental private medical insurance. The fact that supplemental private medical insurance is developed only to a very limited extent up to now in Poland is among others - a consequence of the (at least in theory) rather generous benefit package of social insurance. (2) Residual supplemental insurance in Poland: At present, user charges or co-insurance payments of the insured while using services within the social health insurance system are established in the following areas: If the insured is using a hospital of a higher reference level than the reference level mentioned in the outpatient doctors referral, the sickness fund is required to calculate the difference in prices between both reference levels and must charge the insured with that difference (Art. 31c No. 2 and 3). According to the Worldbank projects experts knowledge, however, this regulation has hardly been implemented through the sickness funds (and also is only reluctantly executed by the providers) up to now; the experts recommend that the regulation should be implemented rather strict, in order to strengthen the referral system. In case of drugs, lump-sum payments and co-insurance are established (Art. 37). Also price limitations (reference price system) are established and in that case the insured persons has to pay the difference between the drug price and the price limit (Art. 38). For diagnostic materials and disposable equipment lump-sum charges or co-payments can be established through a regulation by the Minister of Health and Social Welfare (Art. 39). The Worldbank project s expert un- Prof. Wasem: (Old) Task 4 of Worldbank project - April 2001 page 9

derstand that this regulation hat not been established yet. For orthopedic materials, aids and technical means a co-payment may be established through regulation by the Minister of Health and Social Welfare (Art. 47 No. 1); there may also be a price limit (reference price system) established by the sickness funds (Art. 47 No. 3). The Worldbank project s expert understand that this regulation by the Ministry has not been established yet. Some co-payment has to be paid as well for costs of room and board in a spa sanatorium (Art. 48 No. 3). This details will be specified in a regulation by the Minister of Health (Art. 48 No. 6), of which the experts understand that it has not been established yet. Co-payments and user charges are instruments to shift some financial burden from the social health insurance system to the users of the health care facilities; at the same time they make users aware of the financial consequences and encourage a responsible use of resources. On the other hand, these advantages have to be balanced against the problem of hitting persons, who are poor and ill; it has to be avoided that they are overburdened. 8 In comparison to the international experience, the level of co-payments and user-charges, as it is written in the law, in Poland is still moderate. 9 Hospital treatment as well as outpatient treatment by general practitioners and specialists is not covered by the co-payment scheme but totally free 10. 8 9 10 It has to be stated that people have been already hit by steady drastic growth of HC expenditures paid by HH budgets. Besides, 9% of all bank credits and loans is taken by people to pay costs of medical treatment. We have learned that doctors say that many of them earn more money now then ever before (very often informally). This is only true, if we disregard under the table payments, which increasingly are discussed as an unwanted aspect of the health care delivery system in the public. According to art. 31 f of SHI Act co-payment will be established for some diagnostic services (offered in primary and specialist ambulatory care). However at this moment a proper legal Prof. Wasem: (Old) Task 4 of Worldbank project - April 2001 page 10

The existing co-payment scheme may however form a basis for the establishment of residual supplemental insurance by private health insurance companies. They would need, for the development of such health insurance policies, some trust in the stability of existing co-payment arrangements which does not exclude that additional co-payments in other areas of the health care system could be implemented in the future. It would be rather useful, if those regulations by the Minister of Health, which are foreseen by the law but not implemented yet would be established rather soon. There do exist already now some insurance policies, which provide a per diem lump sum benefit in case of medical care; this could be used for payment of copayment and may form the basis for the introduction of policies to cover the official co-payments. It is assumed however 11, that the lump-sum benefits out of these insurance policies are used mainly to pay under-the-table payments, which are collected by physicians in some health care facilities. (3) Substitutive supplemental insurance in Poland: After the election to the Sejm in 1997 an important amendment was made to the General Health Insurance Act: Article 4a was newly introduced into the act, which will come into effect with the beginning of 2002. According to that regulation, all persons who are mandatorily insured in the social health insurance system may perform their obligation to possess a health insurance in a health care insurance organization other than a Sickness Fund. The regulation specifies the criteria, according to which this insurance may work. With this regulation in Art. 4a Poland is one of the few countries in the world, which will allow private health insurance institutions to perform activities of 11 regulation was not prepared by MOH. See for instance: BUPA International: Study on Private Health Insurance in Developing Countries. Draft Final Report. London 1999, p. 38. Prof. Wasem: (Old) Task 4 of Worldbank project - April 2001 page 11

mandatory health insurance. 12 Substitutive insurance through private health insurance agencies will therefore be on the agenda in Poland rather soon, and issues of details of regulation and supervision of that type of insurance will have to be solved. (4) Alternative supplemental insurance: There is no clear picture in alternative supplemental insurance in Poland at the moment. In theory there should be no room for such insurance business, because those services which are granted through the General Health Insurance Act to the insured (either paid by the Sickness Funds or, based on the regulation of Art. 31 para 1 No. 7 of the Act, by the state budget) should be delivered in the accepted quality and without waiting lists. It seems, however, that some companies in Poland (primarily, but not only, in Warsaw) offer their employees alternative insurance, by which they get coverage for services which are in principle included in the benefit package of the General Health Insurance Act. Partly, alternative insurance systems work as integrated health care financing and delivery systems, like HMOs. Some of them are build around hospitals. At present, these integrated health care financing and delivery systems do not work under the Act on Insurance Business. Because of the fact that they in fact carry risks, this does not seem to be satisfactory. It is also a violation of fairness of competition between regular insurers and HMOs, because the latter can use the deficit of regulation to have some adavantages in their competition with regular insurers. 13 A clear cut decision, whether integrated financing and delivery systems are wanted by the Polish society seems to be necessary. 12 13 Policy makers in most countries in the world are frightened that allowing private health insurance to play a role as sole insurer for parts or the whole of the population might lead to severe conflicts with principles of equity and solidarity, therefore in most countries, private health insurance is limited to supplemental or risidual insurance. The experts therefore support the attitude of PUNU, which argues that this solution is not acceptable because it violates existing legal regulations. Prof. Wasem: (Old) Task 4 of Worldbank project - April 2001 page 12

Alternative insurance (being it traditional insurance policies or integrated HMOtype of institutions) is judged by the Worldbank project s experts not as a satisfactory development for the health insurance system in Poland because it is result of the development that people, who pay their contributions to the social health insurance system, believe (or even make the practical experience) that the benefits, which they are entitled to according to the General Health Insurance Act, are not available to them in reality. If the financial situation of the social health insurance system and for those services financed out of the state s budget does not allow to deliver all services which are granted in the law, a revision of the benefit package of the system with the aim to exclude certain services or with increasing co-payments is the more transparent and more responsible way to act with a shortage of financial resources than a situation, in which in theory health care services should be available but are not in reality. As we have pointed out above, in case of clear exclusions of benefits or increasing copayments there will be a chance for the development of residual or supplemental health insurance; this is clearly more favorable than the type of alternative insurance, which is developing because of the fact that services granted through the law can not be utilized in reality. 14 3.2.2 Findings and recommendations In the previous sub-section of the paper it had to be examined, which of the four potential functions of private health insurance might be of relevance for Poland in the short 14 It has to be admitted, that Poland is not the only country in which such a situation exists. Alternative insurance is also find in, for instance, Great Britain, Irland and Spain. In these countries it is accepted that people pay taxes which include entitlements for health care and at the same time pay for full coverage private insurance, so they rarely use their entitlements in the public sector. For politicians such a situation may be more easily to manage than limiting the public benefit package. Prof. Wasem: (Old) Task 4 of Worldbank project - April 2001 page 13

term and which might be of relevance in a more medium and long term perspective. 15 In addition, proposals will have to be developed, which of these functions could be supported by a coherent government policy 16. The analysis came to the following findings and recommendations: a) Supplemental medical coverage by private health insurance companies, covering for exclusions in the benefit package, provided for in the General Health Insurance Act, is playing only a negligible role in Poland at the moment. This is due to the fact that the benefit package is rather generous, thus not giving much room for the development of supplemental medical coverage policies. In fact, however, financial realities and the benefit package granted in the law do not really fit together. Informal waiting lists, under-the-table-payments, low quality of health care provision, establishment of parallel insurance for the same services have developed during the most recent years. Non of these developments is satisfactory. The Worldbank project s experts recommend therefore a thorough analysis, of what benefit package can really be provided within the social health insurance system. A development of a set of criteria for prioritizing should be developed. As a result, it would become clear, which benefits will no longer be covered by social health insurance; the remaining benefits, however, would not only be written in the law, but would be accessible at reasonable quality, because there would be resources for financing them within the public system. Those services, which would be eliminated from the benefit package of social health insurance or from payment through the state budget, would form the basis of the development of supplemental private insurance. Such development 15 16 Quoted from: ToR for Task 4: Regulation of private health insurance markets in Poland, section 5.4.1: Identifying potential functions of private health insurance in Poland and evaluation of their potential role in Poland. Quoted from: ToR for Task 4: Regulation of private health insurance markets in Poland, section 5.4.1: Identifying potential functions of private health insurance in Poland and evaluation of Prof. Wasem: (Old) Task 4 of Worldbank project - April 2001 page 14

17 could be made more attractive by given tax incentives for the insured to demand supplemental insurance policies. b) Residual insurance, covering co-payments in the public system, is playing only a rather limited role in Poland at present, although quite a number of copayments are foreseen in the law. Some private health insurance policies pay lump-sums in case of medical treatment, which seem to be used to pay underthe-table-payments, however. The role of co-payments could be increased 17 with a two-fold purpose: Shifting some expenditures from the sickness funds to private households (in order to be able to finance the major risks with reasonable quality), and encouraging an efficient use of resources by the individuals. At least those regulations by the Ministry of Health, regarding co-payments, which are mentioned in the law, but have not been established yet, should be established soon. It is an open question however, whether the establishment of residual private health insurance, covering co-payments, should be actively supported by the Polish government. On the one hand, it will make the enlargement of copayments more acceptable. On the other hand, at least in those cases, where copayments are established in order to make use of resources by the patients more rational, any supplemental insurance coverage will disturb that effect: Once the persons do have voluntary insurance against co-payments they behave with regard to their utilization behavior as if there were no co-payments at all. c) Substitutive insurance might play an important role within the Polish health care system rather soon. The Worldbank project s experts got the impression that many Polish citizens are rather unsatisfied with the present social health insurance system. They might find the chance, given to them by Art. 4a of the Gentheir potential role in Poland. It should be repeated however, that expenditures of HHs for health care have grown rapidly in Poland in recent years. Prof. Wasem: (Old) Task 4 of Worldbank project - April 2001 page 15

eral Health Insurance Act rather attractive 18, therefore. From the perspective of health policy, the crucial question will be: How to regulate Art. 4a insurance? The experience of various examples of substitutive insurance in different countries shows that it depends on the details of regulation, whether the effects of such a system are acceptable for health policy or not. The present phrasing of Art. 4a of the General Health Insurance Act still leaves some questions open, which must be tackled with during the next month, in order to establish a regulatory framework, which makes Art. 4a-insurance being a success story. Some of these questions are: According to the law it is not allowed to differentiate premium depending on risk factors (Art. 4a para 1 No. 3), and family members are covered without additional premium (Art. 4a para 1 No. 5). By explicitly forbidding these types of differentiation, but not positively stating any specific type of premium calculation, the law leaves open the question, what kind of premiums are allowed: only income related? Only 7.5 per cent of income or other premium levels? flat rate premiums as well? The answers to these questions will have a strong influence on the redistributive impact of Art. 4a insurance. The law does not make any statements on the design of the relationship between Art. 4a- insurance institutions and health care providers: Do they have total freedom in designing these relationships? Are traditional indemnity insurance policies allowed or only insurance policies which are based on contracts between insurance companies and providers? Are the regulations on service provision mentioned in Art. 54, 55a, 56, 57, 58 binding for the private insurance companies as well? Are the rights granted to sickness 18 Some local experts expect that many people will leave sickness funds because: a) they are not satisfied of existing services, b) they believe in private institutions, c) bosses of these institutions (e.g. Commercial Union) mentioned that they want to organize unprecedented promotion (advertisement) to get clients. We will deal with this issue in a separate paper. Prof. Wasem: (Old) Task 4 of Worldbank project - April 2001 page 16

funds in Art. 61 given to private health insurers as well? The answer to these questions will influence, whether Art. 4a insurance will be something new to the health insurance system or whether it just will be some additional insurers like the existing sickness funds. What are the requirements for getting a license from UNUZ mentioned in Art. 4a para 1 No. 6? Will there be additional requirements with regard to solvency, responsibility of the management etc. which are not already regulated in the Act of Insurance Business? Will integrated financing and health care delivery systems of the HMO-type be able to get a license under the Art. 4a provision? How strict will the mandate to provide insurance coverage on the whole territory of the Republic of Poland (Art. 4a para 1 No. 4) be interpreted, considering on the one hand the fact that sickness funds are basically restricted to a territory and do at least in fact not offer coverage on the whole territory of the Republic of Poland, and considering on the other hand that most insurers will start with a relatively small number of insured which will make it difficult to have contracts with providers in the whole territory? The answer to this question will influence strongly, how many insurers will apply for a license. Will Art. 4a insurers be treated equally to sickness funds with regard to tax law and related issues? Will the contributions to Art. 4a be treated equally in terms of the tax law? Will Art. 4a insurers be included in the equalization system of Art. 135 of the General Health Insurance Act? Will there be a separate system of equalization? The Worldbank project s expert recommend strongly to start with Art. 4a insurance only after a thorough analysis with regard to these (and other) questions Prof. Wasem: (Old) Task 4 of Worldbank project - April 2001 page 17

has been done and health policy makers are convinced that this strategy will lead to favorable results. d) Alternative insurance (meaning parallel insurance ) has started already in Poland. The Worldbank project s experts do not recommend to support the further development of that type of insurance, because it is the result of strong deficiencies in the basic health coverage system. Rather they recommend to analyze the benefit package of the basic system and support the development of supplemental insurance covering exclusions from the benefit package of the basic system. 4 Examination of policy issues related to the links between private health insurance markets and governmental health policy strategy The Terms of Reference pose some questions regarding the links between private health insurance markets and governmental health policy strategy 19. We will deal with these questions in the following section: 4.1 Who shall be enabled to sell supplemental health insurance policies? Especially the Polish health policy makers are, according to the ToR, interested in the following issue: Will the various health insurance institutions of the national scheme also be allowed to sell supplemental health insurance policies? What effect would this have for national health insurance? International experience shows that there is no straightforward answer to these questions: Whereas in some countries, it is strictly forbidden for social health insurance institutions, to sell voluntary health insurance on top of the basic package they are administering, other countries allow them to sell additional insurance as well. 19 See: ToR for Task 4: Regulation of private health insurance markets in Poland, section 5.4.2 Prof. Wasem: (Old) Task 4 of Worldbank project - April 2001 page 18

Also, theoretical reasoning does not provide a clear-cut answer: On the one hand, there is a clear argument in favor of allowing social health insurance institutions (sickness funds) to sell additional insurance policies as well: Because it enables the insured population to have the whole health insurance coverage with just one institution. Especially if supplemental insurance is to a certain extent related to the basic insurance (for instance, because it is topping up some benefits of the basic package) it may be more convenient for the insured (but, under certain circumstances, also for health care providers) if they do have to deal only with one insurance institution. The sickness fund, managing the basic package, might be very close to identify the needs of its insured and therefore might be able to develop supplemental insurance policies which are close to the preferences of their insured. In competitive social health insurance systems (like the Polish system, in which insured persons have a right to choose a Sickness Fund according to Art. 60 para 1 No. 5 of the General Health Insurance Act), the development of intelligent supplemental health insurance policies might lead to a situation in which the choice of insurance funds is guided by the preferences of the insured towards their whole health insurance coverage: They choose those sickness funds, which develop supplemental health insurance policies they like. On the other hand, however, there are also three arguments against the option to allow sickness funds to sell supplemental health insurance policies as well: (1) It will be an obstacle in the development of private health insurance business social health insurers, having close contact to their insured, might have a natural advantage in comparison to private health insurers; 20 (2) there is the danger that social health insurers might try to take some revenues from basic insurance in order 20 It has to be taken into account, however, that sickness funds have no experience how to deal with this kind of insurance so they will be in worse position in case of competition. Prof. Wasem: (Old) Task 4 of Worldbank project - April 2001 page 19

to subsidize supplemental insurance, which would be unfavorable in terms of health policy and in terms of its distributional impacts; (3) specifically in competitive social health insurance systems, with their dangers of risk selection strategies by the competing sickness funds, sickness funds might use the design of supplemental insurance and the combination of the supplemental policies with the basic policies as a tool for risk selection for basic insurance 21. This leads to the conclusion that an answer to the question in the end depends on the capabilities of the insurance supervisory institutions (in the Polish case: UNUZ and PUNU) to control for the potential disadvantages: If UNUZ is able to prohibit crosssubsidizing supplemental insurance by revenues from basic insurance and if it is able to prohibit using supplemental insurance as a tool for risk selection for basic insurance, than it might be attractive to allow sickness funds to sell supplemental insurance. If UNUZ does not have the capabilities to avoid these potential disadvantages, then only private health insurers should be allowed to sell supplemental policies. A potential compromise could be that regulation would allow for joint ventures of sickness funds with private health insurance companies to offer this kind of insurance. The issue is getting more complicated, however, through the existence of the regulation in Art. 4a of the General Health Insurance Act: If private health insurers will be able to provide substitutive, full coverage insurance, the question has to be answered, whether these insurance companies will be allowed to sell supplemental insurance as well. If they would be allowed to do so, because they are private insurers and perhaps do even sell supplemental insurance policies already now, it is hard to imagine to forbid sickness funds to do so as well. 22 21 22 For instance they could integrate benefits in their benefit package which are interesting for the young and healthy (for instance: paying parts of fees of fitness studios), so these funds will attract the yound and health and therefore do engage in risk selection. The experts therefore a skeptical on allowing sickness funds to sell supplemental insurance in the context of the present system, they think that it is necessary to allow sickness funds to do so, Prof. Wasem: (Old) Task 4 of Worldbank project - April 2001 page 20

4.2 Shell the regulator permit supplemental insurance covering higher quality of services which are included only in standard quality in the basic system? As has been described in section 3.1, supplemental insurance which is covering higher quality of services which are included only in standard quality in the basic system, is one of the traditional features of supplemental health insurance, and examples of that type of insurance policies can be found in many European and non- European health insurance markets. Our recommendation in section 3.2 was to examine carefully the basic benefit package and to enlarge the segment of services which are excluded from the basic benefit package (in order to be able to finance the remaining services), and exclusion of non-standard services, of services with higher quality, is of course one feasible way to reduce the basic benefit package. Having excluded nonstandard benefits, one consequence of this is, that risk adverse people who are not satisfied with just standard treatment might be interested in having insurance coverage against the costs of higher quality services. Therefore in principle it seems quite clear that the regulator should permit such insurance policies. It must be added that, as a matter a fact, there can be some doubt whether in the European Union the regulator would be allowed to forbid such insurance policies. For the possibilities to intervene in the supplemental health insurance markets are rather limited, because they have to be in conformity with the Third EUdirective on Non-Life Insurance. However, there still remain some questions, which are raised in the ToR 23 and which in deed need further discussion: 23 however, in a system of Article 4a-insurance. See: ToR for Task 4: Regulation of private health insurance markets in Poland, section 5.4.2 Prof. Wasem: (Old) Task 4 of Worldbank project - April 2001 page 21

Shall the same providers, who have contracts for standard quality with social health insurance be allowed to sell higher quality to insured having supplemental insurance? In different health care systems, different solutions can be found with regard to this question: In some health care systems there is a quite strict separation health authorities or health insurance institutions contract with certain (often: public) providers for standard quality and higher qualities can only be provided by other (often: non-public) providers. In other health care systems, the same providers, who have contracts with the basic system, may also sell higher qualities to the insured of the basic health coverage system. There are advantages and disadvantages of both solutions: The advantage of allowing health care providers, who have contracts with the basic system for standard quality, to sell higher quality for the insured persons of the basic system (who might have supplemental insurance, but might also be willing to pay cash for higher quality) is that there are no two classes of health care providers. It may also help to assure the quality of standard quality if the same providers may sell also higher quality. On the other hand, providers may have a strong financial interest in selling higher quality and they may press patients to buy this higher quality which may lead to a discrimination of patients who can not or want not to afford to buy higher quality. If regulation allows health care providers to sell higher qualities of services and goods to the insured of the public system, there should be some regulation therefore to prevent that selling higher quality is in fact used as an instrument to discriminate against those persons who only want to consume those services they are entitled to in the public system. For instance, it may be forbidden for hospitals to have waiting lists for standard quality if they want to sell higher quality. 24 Or there 24 This is probably more easily done in theory than in reality. If, for instance, a hospital has 20 rooms of standard quality and 10 rooms of higher quality and all standard quality rooms are full, it is almost impossible to forbid them to sell access to higher quality rooms in that situa- Prof. Wasem: (Old) Task 4 of Worldbank project - April 2001 page 22

may be a complaint procedure and providers run the risk of loosing their contract with the basic system if there are complaints that they discriminate against patients who refuse to buy higher quality. 25 Will the basic system still pay for standard quality if insured buy higher quality? Also with regard to this question, the answer is not easy and empirical investigation shows that both options are used in social health insurance systems, sometimes even within one country. 26 The second option (social health insurance not paying anything if other than the standard service is delivered) is based on the idea that social health insurance is obliged to control quality of services, which it can only do for those types of quality which it has contracted for; the first option (social health insurance paying what it would have to pay in case of delivery of standard service) is based on the idea of consumer sovereignty, who should not loose their total entitlement if they want to upgrade social health insurance s services. The decisions on those two questions have a strong impact on the design of supplemental private health insurance policies: If insured of social health insurance could buy other than standard quality from those providers, who are contracted by social health insurance and if they only would have to pay for the difference in prices, because social health insurance pays for the rest, then risk-averse people will seek supplemental insurance contracts covering the costs of the differences in health services qualities. Regulation therefore decides crucially, about the extent to which 25 26 tion. Otherwise it would be necessary to force them to sell the higher quality rooms in that situation without any additional revenues, which is not fair as well. The experts have learned that there is a procedure to complain already in Poland but it does not bring real improvement. We recommend to examine the reasons for that finding. For instance in Germany, until recently social health insurance provided in dental conservation only certain standardized materials; if the insured wanted more expensive materials, they did not get any partial benefit by health insurance, but had to pay the whole service on their own; as far as hospitals are concerned however, social health insurances pays for those of its members, who want to be treated by senior consultants (which is not part of the standard quality treatment, which is restricted to junior specialists) the price which they would have to pay for junior specialists treatment and the patients (or their supplemental insurance) pays for the difference between the price of a senior specialist treatment and a junior specialist treatment. Prof. Wasem: (Old) Task 4 of Worldbank project - April 2001 page 23

Regulation therefore decides crucially, about the extent to which this is possible. 4.3 Will private insurers be able to sell policies with differing benefit packages, or will the benefit packages be standardized? With regard to this question, the answer depends on the type of private health insurance under discussion: As far as substitutive health insurance is concerned which is enabled through Art. 4a of the General Health Insurance Act, there must clearly be a minimum benefit package, which will have to be equal to the benefit package, Sickness Funds are obliged to provide through the law. Insofar it is important to emphasize that Art. 4a para 1 No. 1 is quite clear on that. Otherwise, if private health insurers could offer benefit packages with reduced services, this might be an invitation for risk selection strategies which must be prevented. It should also be mentioned that this type of requirement (minimum benefit package) can be mandated for substitutive health insurance in conformity with EU-regulations. As far as supplemental or residual health insurance is concerned, there should be no standardization of benefit packages. Rather, demand and supply for different packages should be enabled to articulate freely. This will help that the preferences of the population for different types of insurance policies can develop. It should also be mentioned that a standardization by the public regulator would not be in conformance with EU-regulations. Saying this does not prohibit, of course, to give some general regulations regarding certain conditions of insurance contracts, which are typically regulated in Acts on Insurance Business and Insurance Contracts. 4.4 Does the current benefit packages provided under the insurance law by i) Prof. Wasem: (Old) Task 4 of Worldbank project - April 2001 page 24

Sickness Funds and ii) the Ministry of Health require change or improved coordination with private insurance packages? This question has already been dealt with in section 3.2 of this paper. In that section of the paper, the Worldbank project s experts recommend to analyze very thoroughly the benefit package granted in the General Health Insurance Act, because it is very generous in theory, thus making the development of private, supplemental health insurance policies rather difficult, although in reality, not all of the benefits promised in the Act can be realized by the insured. It is also recommended in that section of the paper that those regulations by the Ministry of Health regarding co-payments which are mentioned in the Act but have not been implemented yet should be established soon. 4.5 Should there be specific changes or phase-outs of highly specialized, tertiary services now covered under the Government s budget for health? From an health economics and insurance economics point of view, highly specialized (and most the time rather expensive) care should be included in a basic public health cover scheme (be it tax financed or social health insurance) at least if it is proven to be cost-effective. 27 It is this type of care for which the likelihood that the average person needs it is rather low, but when he needs it, he can not finance it out of his own resources with other words: Especially for tertiary care it is quite clear that its inclusion in any risk pooling mechanism (and tax financed as well as social insurance financed systems are, among others, risk pooling mechanisms) is welfare-increasing. Therefore it is not advisable to leave tertiary care to voluntary supplementary insurance. Instead it must remain under a mandatory scheme. 27 See for instance: Musgrove, P. Public and Private Roles in Health: Theory and Financing Patterns. Worldbank: Washington, DC 1996. Prof. Wasem: (Old) Task 4 of Worldbank project - April 2001 page 25