Low population health is associated with reduced economic prosperity, and medical expenses can plunge people into poverty, especially if unexpected. Insurance is a key tool used to manage health risks, facilitating access to and usage of healthcare services and protecting against financial shocks should a health issue arise.
The January 2023 special issue of The Geneva Papers on Risk and Insurance, edited by Luke Connelly and Christophe Courbage, explores the relationship between health risks and insurance. Article topics include how health insurers can increase take-up rates and deal with moral hazard, the positive effects health insurance can have on peoples’ health and finances, and the performance of health insurance markets.
Boosting take-up of long-term care and health insurance
In Cognitive abilities and long-term care insurance: evidence from European data, Katerina Gousia explores whether memory skills, numeracy and verbal fluency have an influence on long-term care (LTC) insurance uptake. The results show that memory skills have a positive and statistically significant effect on the probability of owning LTC insurance that goes far beyond that of other factors, including education and income level, perception of mortality risk and family structure. Cognitive limitations may therefore be an important factor affecting the expansion of the market for LTC insurance, warranting consideration in policy design.
The article by Christophe Courbage et al., On children’s motives to influence parents’ long-term care insurance purchase: evidence from Switzerland, looks at adult children’s willingness to encourage their parents to purchase LTC insurance, as well as their motivations for doing so. They find that just under a third of those surveyed were willing to influence their parents’ decision, with the majority doing so for altruistic rather than self-interested reasons. This implies that targeting adult children or encouraging family discussions about LTC insurance could increase take-up rates among elderly parents.
Hua Chen et al. examine how family ties influence health insurance uptake in Family ties and commercial health insurance consumption in China. The findings provide evidence of a positive relationship at both the individual and family levels, with greater effects among those with higher incomes and those who are older. With this in mind, the authors suggest that a shift from individual-oriented to more family-oriented health insurance products and services may be one way to improve take-up rates.
Improving health and finances
In Does private health insurance prevent the onset of critical illness and disability in a universal public insurance system?, Daehwan Kim and Dong-hwa Lee analyse the effect of health insurance on health outcomes. Specifically, they look at whether the probability of contracting a critical illness or becoming disabled varies between uninsured and privately insured individuals. They find a lower incidence of both critical illness, including cancer, cardiovascular and cerebrovascular disease, and disability among the insured group, providing clear evidence for the positive long-term effects of private health insurance on individual health status.
Feiyan Yang and Li Wei look at whether the introduction of tax-subsidised health insurance improves health status and lowers out-of-pocket medical expenses in The impact of tax-subsidized health insurance on health and out-of-pocket burden in China. Their results indicate that it has led to better individual health status – likely by increasing the use of and access to care – but that it has not reduced personal financial burdens. The authors suggest that the design of policies could be adapted to address this issue, for example increasing reimbursements for certain drugs or raising the benefit limit for treatment.
Dealing with moral hazard
Lan Nguyen and Andrew C. Worthington explore whether holding extra private health insurance drives up usage of dental care services in Moral hazard in Australian private health insurance: the case of dental care services and extras cover. Their results provide evidence of a significant ex post moral hazard effect associated with dental care in the private health insurance market in Australia. This may result in higher losses for insurers, and ultimately higher premiums for policyholders, but it also provides evidence that private health insurance can encourage healthier behaviour, which may in turn reduce ex ante moral hazard.
Voluntary deductibles, which are accompanied by premium discounts, aim to decrease moral hazard among policyholders. Marcello Antonini et al. examine how effective they are at doing so in Can risk rating increase the ability of voluntary deductibles to reduce moral hazard? They find that voluntary deductibles are indeed successful at reducing moral hazard, particularly for risk-rated health insurance schemes. The effect is found to be less pronounced in community-rated systems, i.e. those in which holders of a given policy pay the same premium. The results suggest that some risk rating can be beneficial in social insurance schemes, which may be of interest to insurance regulators.
Performance of health insurance markets
Managed care plans aim to help health insurers reduce costs by giving them greater control over the healthcare services policyholders use. For example, health maintenance organisations (HMOs) can employ a gatekeeper function, which requires that policyholders visit primary care providers before being referred to specialists. In the article Managed care or carefully managed? Management of underwriting profitability by health insurers, Patricia H. Born et al. examine whether such plans succeed in reducing health insurers’ medical loss ratios. They find that health insurers with higher enrollments in plans that employ the gatekeeper function exhibit significantly lower medical loss ratios, concluding that these plans may lead to better underwriting performance.
In the U.S., many health insurers specialise in providing coverage to certain segments of the population. Etti G. Baranoff et al. investigate whether this has an impact on their financial performance in the article On the financial superiority of Medicaid specialist insurers: a novel transactions cost/supply chain approach. They find that of insurers that specialise in individuals, government employees, private employees, Medicare enrollees and Medicaid enrollees, Medicaid specialist insurers perform best. They attribute this to the fact that these insurers have the highest involvement with poor populations, which they find has a significant influence on return on capital.
Access the full issue for free until the end of February 2023.