Bismarck Model

What are the variety of benefits can consumers in the Dutch system choose from?

1. Benefits in cash (formerly provided only by private health insurers) 2. Benefits in kind (formerly only provided by social health insurers)

How can risk selection be confronted?

1. Ex-post cost based compensation 2. Risk Adjustment

Multiple non-profit insurance funds offer health insurance in a nationwide market that is constrained by what 4 major rules?

1. Minimum standards 2. Open enrollment 3. Community Rating 4. Compulsory Participation

What are the 3 types of risk sharing?

1. Proportional 2. Outlier 3. High Risk

Describe risk equalization funds

A subsidiary fund run by a government agency, which assesses risks for individual policy holders. In all countries that apply risk-adjusted premium subsidies in their health insurance market, the sponsor organizes it in the form of risk equalization among health insurers: the risk-adjusted premium subsidies for the insured are channelled to the insurers.

Define Universal insurance

All or nearly all of the population have health insurance coverage either through a plan sponsored by an employer or through the government. While the employer-sponsored health insurance schemes tend to be nominally private, they are heavily regulated by the government.

How does payroll financing promote equity?

By ensuring that low income, unemployed or retired workers receive an automatic discount on their health insurance.

How are the Economic Liberty value of the Bismarck Model accomplished in the system?

Docs and patients are at liberty to make fundamental economic choices, such as which hospital to visit or where to open a new clinic

T or F Even though health insurance is universal, citizens can choose whether or not they are insured.

False. Under the Bismarck model, universal coverage is mandatory. This prevents adverse selection.

Describe the philosophy of self regulation by industry members rather than the german governement

Patients and insurers are free to choose their health care providers, who can compete to attract them by providing high-quality care. But health care providers cannot compete on price; price schedules for doctors and hospitals are negotiated annually between the insurers and providers.

How are insurance plans primarily financed?

Payroll taxes (proportional taxes on income) rather than premiums on individual customers

How does compulsory insurance prevent the worst of adverse selection?

People are prevented from leaving the pool when they are healhy

What are the 2 major values of the Bismarck Model?

Solidarity and Economic Liberty

How are the Solidarity value of the Bismarck Model accomplished in the system?

The poorest and sickest members of support are subsidized by the system (paid for by the gov and the richest and healthiest-- how pay high taxes and actuarially unfair premiums to keep the system afloat.

Describe cream skimping

The under-provision of services to high severity patients

T or F Health insurance coverage is primarily financed through payroll and other taxes.

True

Describe Risk adjustment

( PROPECTIVE) Risk adjustment also entails the establishment of a central fund to manage transfers between sickness funds. However, under risk adjustment, transfers are based on ex ante risk assessments and not actual cost outcomes. Insurance funds that draw unhealthy customers are reimbursed based on how expensive their customers are expected to be, not on how expensive they actually are.

Describe Risk Sharing

(RETROSPECTIVE) The premiums and losses of each member of a group of policy holders are allocated within the groups based on a predetermined formula

Spending data from recent years indicates that the Beveridge systems in Europe spend less or more than the Bismarck systems in Europe?

LESS

What are the three common factors all Bismarck countries have?

Mandatory universal coverage Community Rating Regulated Private Health Care provision

T or F In Bismarck model Physicians have no say in what prices to charge their patients.

Physicians have a say at the annual price setting period. This is when providers meet with the central government and decide upon what prices should be set.

Describe cream dumping

The explicit avoidance of high severity patients

What are the 2 major problems of the Bismark model?

1. Cost Containment 2. Adverse Selection

T or F Every Bismarck country has over a hundred sickness funds for patients to choose from, which distinguishes them from Beveridge countries.

True

Define Risk Rating

Charging different premiums to different customers based on their individual risk of needing health care.

What is the main focus for health policy in Bismarck countries?

Controlling of health expenditures

What are the major conclusions of the Dutch Reforms?

- More transparency for consumers - Arbitrary separation between SHIT and PHI has been abolished - All consumers are able to choose between all insurance companies on the market - Health insurers and employers are the key drivers of price competitions and consumer mobility - Dramatic one time increase of consumer mobility - Consumers have started to actively compare prices and options after the introduction of the reform, an important prerequisite for managed competition.

What have been the consequences of Dutch Reforms in terms of Price competition, market concentration and consumer mobility?

- Price competition between health insurers became very fierce, about one of five consumers changed health insurers and the consolidation of the health insurance market continued - One of the most dramatic consequences of the health insurance reform was a one-time increase of consumer mobility. -Before the reform, consumer mobility and price sensitivity in the Dutch social health insurance system was rather low

What have been the financial consequences of the Dutch reforms?

- Since the reform changed the premium calculation of health insurers the impact of the reform on the purchasing power of private households depends on the former insurance status of individuals. - Individuals who used to be covered by social health insurance now pay a higher community-rated premium and a lower income-dependent premium. -This effect is attenuated by the tax-financed subsidies for low-income groups. - The financial consequences for individuals who used to be covered by private health insurance primarily depend on the age of the individual concerned. - Young individuals used to pay low premiums while the elderly used to pay high premiums. -Moreover, the Dutch government very carefully tried to minimize negative financial consequences for private households - e.g. by raising old-age pensions and by increasing allowances for families with children.

Describe the Health Insurance Model in Germany

-Health insurance in Germany is divided into 2 broad classes: Statutory health insurance (SHI) and private health insurance (PHI) - All germans who earn less than a high income threshold are required to sign up for a statuatory health insurance plan, people earning above this amount + civil servants may opt for private health insurance but MAY NOT choose to be uninsured. Once you choose private you are not allowed to return to public

What are the two main ways to combat adverse selection?

1. Deny customers the right to choose their insurers in the first place (Japan) 2. Restrict product differentiation. If insurance funds cannot distinguish themselves significantly from competitors, then there will be little to motivate adverse selection by customers, and less inequality if a separating equilibrium does emerge. Germany can be said to use this policy, because statutory insurance funds are limited in how they can differentiate themselves. There is also a generous minimum standard that every fund must meet, which prevents an adverse selection death spiral from taking hold.

How are costs contained?

1. Negotiating fees schedule where prices are periodically set through negotiations between medical professionals and payers. Both private and public providers are bound by these price negotiations and must charge these prices. 2. Limiting access to specialists and new technologies (gatekeepers)

What is the argument for risk adjustment in sickness funds (SF)

1. SFs know their subsidies 2. Incentives for prevention/ efficiency 3. Increase competition 4. Better developed 5. Easier to implement 6. Methods for determining whether patients characters will necessitate high utilization of medical services.

Describe the Dutch system following the 2006 reforms

3 Parts 1. Supplementary Private Health Insurance 2. Private Social Health Insurance 3. Social Insurance for Long Term Care * Executed by private firms, yet regulation is essentially social (gov run) * All health insurers are obliged to accept all applicants * premium rate restrictions do not allow for risk related premiums (aka if you have HIV it is illegal for you to pay more bc of it) * For different risks, insurers are compensated by health based risk adjustment system * Insurance in compulsory for all inhabitants of the Netherlands, but there is no control mechanisms to seek out indivs. who fail to take out health insurance * All health insurers offer a standardized basket of services * Ministry of health determines an income-dependent premium which is the same for all health insurers, covers 50% of all expenditures of health insurers. *Employers pay employment based, income dependent premiums for all other income categories, which are also paid into the central fund. ** Individual health insurers receive risk adjustments capitation payments from the central fund * Another 50% of expenditures are financed by community rated premiums, community rated premiums differ among health insurers.

Describe the 1996 reforms in the German health care system

Before SHI plans were for blue collar workers, but following reforms i n 1996 which dramatically expanded the choices available to patients, loosening the link between employment and SHI many Germans have had the option of choosing among all available statutory health plans

Describe the Dutch health care system before the 2006 reforms

Before the 2006 health insurance reform in the Netherlands, the health insurance system was composed of four parts. 1. Supplementary Private Health insurance 2. Social Health Insurance 3. Alternative Private Health Insurance 4. Social Insurance for Long Term Care

What are some difference between the Beveridge and Bismarck systems?

Beveridge systems emphasize equity and equal access to care, while Bismarck systems emphasize patient choice and provider competition. But we must remember that no country perfectly embodies either model in its policies; in fact, every country has adopted some elements of both. Recent reforms in Beveridge countries have focused on increasing choice for patients and competition between providers. Meanwhile, recent reforms in Bismarck countries have introduced gatekeeping and managed-care tactics that restrict patient choice in certain ways. In short, the Beveridge and Bismarck models seem to be moving closer together, and may one day even be hard to distinguish

Define Compulsory Participation

Customers are mandated to have (and pay for) insurance coverage at all times. This is a means of limiting adverse selection. Without it, people could go without insurance most of the time and then sign up for coverage only when they fell ill.

In the Dutch system what are premium differences supposed to indicate?

Differences in efficiency between health insurers to consumers. Low income individuals receive premium subsidies, which are based on individual need and are paid for by tax money. The state also pays for the community rated premiums of children.

Describe minimum standards

Every insurance contract is required to meet a minimal standard of care; often a central governmental body will enumerate a list of procedures or treatments that all plans are required to cover. There are also limits on copayments and deductibles. .

T or F Like the Beveridge model, there are no real cost controls in the Bismarck model, therefore long queues are a problem.

F. Long queues are not a major problem in the Bismarck model because patients can opt to pay a fee to be seen earlier. The main problem with the Bismarck model is cost containment and adverse selection.

True or False Sickness funds in Bismarck health care systems are publicly administered and financed.

False, Sickness funds are based off of payroll taxes, yet they are highly managed by the central government

T or F Universal health care in Bismarck countries emphasizes equity of care for all individuals, regardless of social and economic circumstances. The sale of private supplemental insurance is prohibited.

False, as this definition stands, this describes the Beveridge Model. The Bismarck system focuses on economic liberty and solidarity.

T or F Patients are charged premiums based on their risk rating.

False. This is illegal in the Bismarck model. Instead a community rating is used. This means that healthier and richer people subsidize the sicker and less wealthier which higher premiums. This means that in order for a sick fund to be successful it MUST have healthy people.

Describe a brief history of Bismarck Model and how it came to be

Following the signing of the treaty of frankfurt in 1871 , Otto van Bismarck became the first chancellor of a united Germany. In order to undermine the support for the rising Social party, Bismarck introduced mandatory sickness funds and accident insurance funds. Coverage was first for workers, then was extended to dependents of workers and eventually to the whole population.

Describe gatekeepers in Bismarck

German gatekeeping systems are voluntary for patients. Patients can avoid gatekeepers and go straight to specialists if they pay a small fee, so the reforms are known as "soft gatekeeping"

Describe the 1992 reforms of the Netherlands

Germany. In 1992, the Dutch system introduced patient choice and subsequent reforms have firmly established a managed-competition framework (van de Ven and Schut 2008). Unlike in Germany, though, insurance is financed jointly by payroll contributions and additional premiums. As in Switzerland, there are subsidies for low-income households, defined in the Netherlands as those that would have to pay more than 6.5% of their income for insurance

How does risk adjustment reduce the incentive for cream skimming?

High-risk customers are no longer necessarily unprofitable. It simultaneously maintains incentives for efficient care because the insurance fund keeps the difference if it manages to treat its 52-year-old diabetic man for less than e12,000. In fact, if an insurance fund learns how to effectively control costs for a certain disease and routinely spends less than the national average, it can actually make money by enrolling sick people.

Countries with a Bismark health care system tend to have lower or higher health care expenditures than beveridge systems.

Higher

Regulated Private Health Care Provision

Hospitals tend to be privately run, and physicians are not public employees. However, prices in the medical care sector are set by the government in consultation with doctors and hospital managers. .

Describe the Dutch health care system in the 1970s

In the 1970s, the system was fairly unregulated, with no price controls and fee-forservice payments to physicians. Rising costs during this period motivated policymakers to reexamine these choices.

Describe Community Rating

Insurers cannot set premiums using risk rating; instead they must be community rated. This means that individual customers cannot be charged differentially even if they are likely to be more expensive. Entails charging everyone in an insurance pool an identical premium. Depending on the insurance program, the pool could consist of a few workers at one company or millions of people across a large geographical area.

Describe open enrollment

Insurers may not reject any eligible customers, even if they are unhealthy and certain to cost the insurer dearly.

Describe the 1982 Health Care Prices Act

It gave the Dutch government greater control over physician reimbursement rates, and fee-for-service reimbursement for public patients ended in 1983.

Describe premiums in Germany

Premiums to finance the SHI companies are collected as payroll taxes, and vary only with income. This means that high-income patients pay more for coverage, but sick patients do not. SHI serves as a vehicle for both the rich to subsidize the poor and the healthy to subsidize the sick, and insures patients against both health risk and classification risk. This redistribution is sustained by an ongoing political appetite for solidarity (Hinrichs 1995).

What are some tactics available to insurance funds hoping to engage in risk selection?

Questionable: • advertising specifically to certain groups; • switching to a managed care model that discourages sick customers; Controversial • closing offices in high-cost regions; • rewarding agents who identify sick customers and foist them offonto other plans; • selectively reminding unprofitable customers that they are allowed to switch funds at any time; Illegal ignoring inquiries from certain consumers; • flatly rejecting potential customers; • holding information sessions or sign-ups in buildings that are not accessible to the disabled; • intentionally providing deficient health care to sick customers in the hope of chasing them away.

Describe Cream Skimming

Risk selection occurs when insurers seek to enroll low-risk customers and seek to avoid high-risk customers. .

Community Rating

The financing of health insurance coverage is primarily through payroll and other taxes, rather than through insurance premiums based on the health risk of the insured person. This sort of financing arrangement means that healthier people in the population with low expected medical spending subsidize the care of the sicker people who have high expected medical spending.

Define Ex post Cost Based Compensation

This involves establishing a national fund to re-insure the various sickness funds. Under such a system, unlucky sickness funds that end up with sicker customers and higher expenditures are reimbursed with transfers from the lucky funds that had healthier customers and lower expenditures If unlucky firms are compensated for 100% of their higher-than-average costs, the motivation to perform risk selection disappears. Insurers can recruit customers confident that, at the end of the year, no patient will be any more or less expensive than any other. Funds know they will be reimbursed for any customer who incurs more expenditures than the average customer. This solution completely erases risk selection, but it also lessens the incentive for insurance funds to operate efficiently. If insurance funds are confident in the knowledge that all of their enrollees' expenses will be paid by the other insurance funds, they have little reason to economize on care

T or F One way that Bismarck nations control costs is through government-set prices for care.

True

T or F Patients in Bismarck model countries are able to choose which health care provider they see.

True. A major point of the Bismarck model is economic liberty, which means that people have the right to choose which health care provider they see.

T or F Like NICE in the UK, Germany has an entity that advises sickness funds on the costeffectiveness of new technologies.

True. Germany has a quality assurance board which accesses the coverage of new technology.

T or F There is an emphasis on managed competition in the Bismarck model.

True. This emphasis comes from the focus on government regulation of private health services. In this way, price is set by the central government and health care providers. This makes it so competition is managed and is based upon quality rather than price.

Describe the statutory plans in Germany

While the statutory plans are nominally private, nonprofit entities, they are extensively regulated and effectively publicly run. They are required to accept all patients, regardless of their medical histories, and cannot charge differential rates to sicker customers. This strategy for strictly regulating an insurance market is called managed competition, so Germany is said to have a managed-competition health insurance market.

Describe risk equalization

enables private health insurance to operate in some countries to be offered at a common rate for all even though insurers are not allowed by law to reject clients or impose special conditions for their health insurance. That is achieved by transfer payments by a risk equalization pool usually run by a neutral party, such as a government agency.

What are the cons with Risk Adjustment

if the central fund does not fully compensate insurance funds for certain types of risks - risk selection will continue.