Health Insurance

Abstract

Health insurance is one of the ways that people in various countries finance their medical needs. It is

estimated that out-of-pocket expenditure of over 15–20 % of total health expenditure or 40 % of

household net income of subsistence needs can lead to financial catastrophe. When people on low

incomes with no financial risk protection fall ill, they face a dilemma: they can use health services and

suffer further impoverishment in paying for them, or they can forego services, remain ill, and risk being

unable to work or function.

Variation in financing and organization structures in various countries notwithstanding, there is now

nearly a unanimous commitment to assuring universal access to medically necessary care in high-income

countries. Internationally, health insurance serves to improve service utilization and protect households

against impoverishment from out-of-pocket expenditures. Analysis of how health insurance schemes

function in a particular country, especially in relation to other funding aspects and health outcomes, can

provide a glimpse of the performance of the whole healthcare system.

Keywords

Health insurance; Access to healthcare; Right to health; Distributive justice; Universal health coverage;

Safety net; Medically necessary; Resource allocation; Patient Protection and Affordable Care Act; World

Health Organization; National health insurance; Social health insurance; Private health insurance;

Community-based health insurance; Socialized medicine

Introduction

Health insurance, which is coverage against the risk of incurring medical and related financial costs, is one

of the ways that people in various countries pay for their medical needs. In every country, there are people

who are unable to pay directly or out of pocket for the healthcare services they need, or financially they

may be seriously disadvantaged by doing so. In lower-income countries, many forms of health

insurance –whether public or private –cover only a minimum set of services, such that they do not

provide full financial risk protection. The World Health Organization (WHO) estimates that out-of-pocket

expenditure of over 15–20 % of total health expenditure or 40 % of household net income of subsistence

needs can lead to financial catastrophe (Doetinchem et al. 2010). When people on low incomes with no

financial risk protection fall ill, they face a dilemma: they can use health services (if available) and suffer

further impoverishment in paying for them, or they can forego services, remain ill, and risk being unable

to work or function.

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Page 1 of 9

Variation in financing and organization structures in various countries notwithstanding, there is now

nearly a unanimous commitment to assuring universal access to medically necessary care in high-income

countries, with the United States being one of the last developed countries to achieve such goals.

Internationally, health insurance serves to improve service utilization and protect households against

impoverishment from out-of-pocket expenditures (Spaan et al. 2012). The WHO considers health

insurance a promising means for achieving universal health coverage. Analysis of how health insurance

schemes function in a particular country, especially in relation to other funding aspects and health

outcomes, can provide a glimpse of the performance of the whole healthcare system.

History and Development

The history of health insurance has evolved internationally. Delivery of medical care, particularly in

industrialized countries, is no longer confined to the offices of primary care physicians. As medical

technologies become increasingly advanced, acute and critical care can now treat many catastrophic,

complex, chronic, and serious conditions and injuries that used to be fatal or disabling. While the

development of new treatments that can restore functioning and/or extend life is welcoming, the costs

of these interventions and accompanying hospital stays can be prohibitively high for many people. The

WHO (2013) estimates that 150 million people worldwide suffer financial catastrophe each year because

of out-of-pocket expenses for their healthcare needs.

Different countries have been utilizing various models of insurance and financing schemes to pay for

medical services based on their respective socioeconomic realities and cultural contexts. These insurance

plans, whether public or private, have different components and payment requirements depending on the

nature of the insurance plan and the services being covered. Some insurance plans require members to pay

premium costs for enrolling in the program and have various levels of out-of-pocket payments such as

deductibles, co-payments, or coinsurance. They may also require prior authorization from insurance

companies to activate coverage for certain procedures or may impose coverage limits for enrollees. Some

insurance companies may also utilize payment capitation for healthcare providers to control costs by

motivating providers to provide only needed services and in the lowest cost setting.

In general, there are three salient categories of health insurance. Nonetheless, variations abound for

each category, and some countries with diverse populations across vast geographical areas (e.g., China)

have multiple insurance programs even for basic healthcare.

National or Social Health Insurance (NHI/SHI)

National or social health insurance (NHI/SHI) is one mechanism for raising and pooling funds to finance

health services for a national population, generally in terms of what is deemed medically necessary. In the

late 1880s, Germany’s (Bismarck) social health insurance model was developed as part of the effort to

build and unify the nation as well as to solve health-related problems due to industrialization (e.g.,

tuberculosis, sexually transmitted diseases, and alcoholism). This model relied on household premiums

and payroll taxes, many risk pools, and services purchased largely from private but nonprofit insurance

providers (Lagomarsino et al. 2012). Employers and employees both contribute to these sickness funds,

which are required to provide a comprehensive benefit package. In the early twentieth century, the

Beveridge National Health Service model in the United Kingdom relied on general taxes, one national

risk pool, and publicly provided services (Lagomarsino et al. 2012). These two general models continue

today and have been adapted for many systems that strive to provide healthcare coverage for their people.

As various versions of these models evolve into more mature SHI systems, enrollees and in some cases

their employers are mandated by national legislation to pay contributions, either through taxation

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(e.g., Australia, Canada, United Kingdom, Thailand) or separate levies. For example, in Singapore,

residents and citizens with employment are required to contribute to the Provident Fund. Together with

employer contribution, a portion of an individual’s fund goes to a Medisave account that can be drawn

upon for healthcare expenses. These various schemes across the globe would cover a package of services

available to the insurees and their dependents.

Many governments also contribute into these systems in order to ensure or improve their financial

sustainability and to extend coverage to people who cannot afford to pay (Doetinchem et al. 2010). In

China, the most populous nation, the Urban Employee Basic Medical Insurance Program (UE-BMI) was

established in 1998. It mandates urban employers and employees of state-owned or private enterprises to

contribute to the insurance program administered at municipal level (Barber and Yao 2010). The newest

scheme in the country, the Urban Resident Basic Medical Insurance (UR-BMI), which was piloted in

2007 and rolled out nationwide subsequently, is a voluntary scheme that enrolls children, students,

elderly, disabled, and other non-working urban residents.

Despite similar basic ideas, there is considerable variation in how SHI systems have developed across

countries. Contributions are held either in a single fund (e.g., Italy) or several competing funds (e.g.,

“sickness funds”in Germany) (Thomson et al. 2013). These funds may be administered by the public

sector (e.g., Australia), the private sector (e.g., Switzerland, the Netherlands), or a combination of both,

such as in Japan, which has a mix of noncompeting public, quasi-public, and employer-based insurers.

For NHI/SHI, contributions do not typically vary with health status, such that the financial risks of paying

for care are shared across the population. Multiple ways of paying providers can be observed even within

one country, from unrestricted fee for service (e.g., the United States) to selective contracting at negotiated

rates (e.g., the Netherlands) (Doetinchem et al. 2010).

NHI/SHI schemes of various countries also offer different coverages. For example, Germany includes

optometry and dental care as part of their schemes, whereas provincial plans in Canada exclude these

services but may cover fertility treatments (e.g., Quebec). Taiwan’s NHI scheme, which is also more

comprehensive than that of many other larger countries, covers dental services, traditional Chinese

medicine, and prescription drugs. One of the lower-middle-income countries, Thailand, provides cover-

age for over 99 % of the population, ranging from HIV treatment to primary care and health prevention

and hospitalization.

There are some systems that only provide NHI/SHI for a subset of population as a safety net and require

or encourage the rest of the population to purchase their own insurance. In the developed world, the

United States is one such example. Medicaid –a joint states and federal social insurance program –is a

means-tested program that pays for basic medical services and drug coverage for Americans with the least

income and resources. It is the biggest health safety net program in the country for people who have low

income and fit into one of the designated needs-based eligibility categories. Another federally legislated

program, Medicare, provides low-cost hospitalization and medical insurance primarily for seniors over

the age of 65, although some low-income seniors and people with disabilities are “dual enrollees”in both

Medicare and Medicaid.

Until recently, those who were not eligible for these two insurance programs but also could not afford

private insurance made up a large proportion of the almost 50 million Americans without coverage. Many

of these patients delay care due to the unaffordability of various healthcare services, and there are

concerns that such delays can contribute to patients ending up with more costly procedures if their

conditions worsen. In an effort to promote health insurance coverage in the United States, the Patient

Protection and Affordable Care Act (now only known as the Affordable Care Act), which was signed into

law in 2010, contains an individual insurance mandate that took effect in 2014 (The Henry J. Kaiser

Family Foundation 2013). This mandate intends to produce similar effects of NHI/SHI by requiring most

citizens and legal residents, unless exempted, to have health insurance. Individuals and/or their employers

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can obtain coverage from private companies, employers, or state-based insurance exchanges that are

administered by non-governmental and/or nonprofit organizations. Penalties can be levied on those who

do not have any form of insurance. Persons who would be paying greater than 8 % of their household

incomes for health insurance can obtain subsidized premiums through the insurance exchanges.

Voluntary and Private Health Insurance (PHI)

While most people paying for NHI/SHI will utilize services rendered within the public scheme, voluntary

and private health insurance (PHI) schemes are increasingly available in various countries. Some of these

insurance plans are offered by nonprofit organizations, including the federally legislated Consumer

Operated and Oriented Plan (CO-OP) program in the United States, whereas others are sold on the private

market, such as various Medisave-approved integrated private insurance plans in Singapore. “Indemnity”

and “cash plan”policies are also available in the private market in the United Kingdom. Depending on

their risk perception, availability and comprehensiveness of public health coverage, quality and accessi-

bility of public healthcare, and the relative and respective affordability of insurance premiums and

healthcare procedures, some people may purchase additional PHI to substitute what would otherwise

be covered by the NHI (Costa and Garcia 2003). Private insurance in healthcare systems that provide

universal access to medically necessary services may offer choice among private hospitals, inhospital

specialists, and shorter wait time for procedures, as in the case of Australia and the United Kingdom

(Boyle 2011; Costa and Garcia 2003).

In other countries, private insurance plans can provide supplementary coverage such as income

replacement in case of missed work due to sickness (e.g., Japan) or pay for costs or co-payments that

are not fully covered by government subsidies or public services (e.g., France) (Boyle 2011; Thomson

et al. 2013). In Canada, people can purchase PHI or extended health plans to finance non-covered services

such as prescription medications, dental care, physiotherapy, ambulance services, and optometry. While

some Canadian provinces prohibited private health insurance for covered services to prevent unequal

access, and that private clinics cannot charge above the agreed-upon provincial fee schedule or for

publicly insured services, the Supreme Court of Canada ruled in Chaoulli v Quebec (AG) in 2005 that

prohibiting private medical insurance in the face of long wait times violated the Quebec Charter of Human

Rights and Freedoms and Section 7 of the Canadian Charter of Rights and Freedoms.

In the United States, many people with private insurance are covered under an employer-based plan,

although individual health insurance coverage can also be obtained through some companies. Given that

the aforementioned Affordable Care Act mandates purchase of insurance plans, enrollment in insurance

plans is not discretionary. Nonetheless, these plans are mostly offered on the private market, and unlike

other countries with compulsory contributions (e.g., Germany, Singapore), enrollees are not required to

contribute a particular percentage of their income toward their health insurance.

Unlike NHI/SHI, which generally does not implement differential premium or coverage eligibility

based on people’s health status, private health insurance plans often charge higher premium for

preexisting conditions and family history or impose restrictions on coverage. Insurance companies may

require applicants to disclose full individual and family medical health history and care-seeking activities

and then decide which conditions to cover and at what price based on the companies’risk assessment.

Preexisting conditions are often excluded from at least temporary coverage (e.g., first 2 years of

coverage), and insurers may consider other factors such as age, sex, smoking status, and occupational

status in determining coverage eligibility and setting premium prices. In the United States, where people

are now required to purchase health insurance, companies are prohibited from canceling or rescinding

coverage except in cases of fraud, or from excluding coverage or charging higher premiums for

preexisting conditions. Before the Affordable Care Act came into effect in 2014, people with various

prior conditions or disabilities could obtain coverage through the Pre-Existing Condition Insurance Plan.

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Community-Based Health Insurance (CBHI)

In lower-income countries including the Democratic Republic of Congo, Ghana, Rwanda, and Senegal,

micro health insurance schemes such as community-based health insurance (CBHI) have been established

as a nonprofitfinancing mechanism to benefit the poor (Spaan et al. 2012). CBHI is usually based on

voluntary membership, whereby members are linked to a healthcare provider (often a hospital in the area).

It is based on an ethic of mutual aid/solidarity whereby members who are susceptible to risk put together

their resources and contribute into mutual health organizations, medical aid societies, and micro-

insurance schemes (Odeyemi 2014). Funds are thereby accumulated and managed to spread the risk of

payment for healthcare among all scheme members. In the 1990s, many rural residents in China lost

insurance coverage due to dissolution of rural cooperatives. However, efforts to revamp and expand the

voluntary rural schemes under the New Rural Cooperative Medical Scheme have resulted in a sevenfold

increase (from 13 % to 93 %) of insurance coverage rate for rural residents between 2003 and 2008

(Barber and Yao 2010). In addition to individual contributions, the central and local governments also

subsidize the program.

While CBHI improves resource mobilization for health and health service utilization and protection for

financial risks, it is vulnerable to adverse selection, where disproportionate enrollment by high-risk

contributors accompanies nonparticipation by low-risk individuals (Odeyemi 2014). While Ghana and

Rwanda have introduced schemes with effective government control and support coupled with intensive

implementation programs, poor support for CBHI is repeatedly linked in other places with low uptake

(e.g., Nigeria), failure to engage and account for the actual needs of beneficiaries, lack of clear legislative

and regulatory frameworks, inadequate financial support, and unrealistic enrollment requirements

(Odeyemi 2014).

Conceptual Clarification/Definition

The various forms of health insurance and different coverage these schemes offer reveal a complex and

evolving healthcare financial system across the globe, particularly in the face of new diagnostic technol-

ogies and interventions that offer uncertain levels of benefits (e.g., genetic tests, stem cell therapies).

While international organizations such as the WHO have been keenly advocating for universal health

coverage, the path to achieving such goal is not without ethical and political controversy as well as

conceptual confusions.

In the United States, which is undergoing a major overhaul of its healthcare financing system,

confusion abounds regarding whether the Affordable Care Act is advocating for “socialized medicine,”

a misnomer that has come to denote government or bureaucratic control and lack of patient choices.

SHI/NHI socializes the financial risks of getting injured or sick by setting up national insurance schemes

or funds. Nonetheless, in almost all healthcare systems that utilize such insurance schemes, with Cuba’s

highly controlled and tightly structured system being a notable exception, the government does not

directly deliver the services or own the healthcare facilities –most hospitals are privately owned and

compete with each other. Even in systems where the government owns some of the hospitals, as in the

United Kingdom, physicians are private practitioners. In England, for example, there has been an

increasing emphasis on developing patient choice, provider competition, and the use of private providers

to deliver publicly funded healthcare (Bevan et al. 2014).

Another conceptual issue that is ethically important is how a system determines what services ought to

be covered in an insurance scheme. Even among more mature systems, there continue to be questions of

what should be covered and whether these schemes can sustainably fulfill enrollees’health needs in the

long run, given the aging population and increasingly advanced and thus more expensive care. Resource

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constraints and increasing needs have begged for ethically, economically, and clinically justifiable criteria

in allocating healthcare dollars.

In determining what services should be covered, many NHI/SHI systems assess the medical necessity

of the procedure. In Canada, when a healthcare service to be provided to a patient is deemed medically

necessary, it is fully funded by the provincial insurance plan. Otherwise, patients must pay for it directly.

The basic idea is to have needs, not wants, determine what the insurance system would cover. Nonethe-

less, the Canada Health Act does not provide a national definition of medical necessity, and coverage for

hospital and medical services differs in every province, which makes its own determination of medical

necessity. Some scholars believe that any attempt to define this term will either result in a definition too

broad and too vague to assist in developing policy, or it could result in long lists of diverse needs of many

groups, which do not add up to a meaningful whole (Canadian Health Services Research Foundation

2002). The American federal program, Medicare, defines medically necessary services as any healthcare

services and/or supplies that a doctor decides are required to diagnose, prevent, or treat an illness, injury,

or disease. Nonetheless, since most Americans rely on insurance plans purchased in the private market, it

is unclear that this definition provides meaningful guidance to people operating private insurance plans

that fund the majority of Americans’medical needs.

In lower-income countries, many of which have different disease patterns, economic realities, cultural

practices, and technological capacities from the higher-income systems, coverage priorities differ accord-

ingly. The WHO believes that these countries should cover “essential health services”and key interven-

tions targeting the health Millennium Development Goals, such as to reduce child mortality, improve

maternal health, and combat HIV/AIDs and other infectious diseases. In advising various countries in

their journey toward universal health coverage (UHC), defined as ensuring all people receiving quality

and comprehensive range of key health services without being exposed to financial hardship in paying for

the services, the WHO pays specific attention to the backdrop of inequality in many low-income

countries. It suggests progressively expanding priority services by considering relevant criteria such as

cost-effectiveness, priority to the disadvantaged groups, and financial risk protection. A commitment to

fairness and the overlapping concern for equity have been deemed important in guiding countries in

making these decisions. Advancing UHC has been identified as a central theme in the ongoing deliber-

ation over the post-2015 development agenda.

As technologies continue to advance and the global population continues to age, there will be

increasing pressure on various countries in reconsidering how to prioritize their resources in maintaining

and improving population health. There will be also questions regarding whether the gap in international

access to healthcare services is widening. While lower-income countries continue to struggle with

providing coverage for basic services, higher-income countries continue to debate whether to provide

coverage for genetic tests that are predictive and probabilistic, aggressive treatments that are potentially

non-beneficial, and other expensive experimental treatments (e.g., stem cell therapies).

Ethical Dimension

The last point regarding inequality and health access brings out the central ethical dimension of health

insurance –whether unequal and inadequate access to health insurance or essential healthcare is a problem

of justice.

In international discussion of health insurance, calls to ensure just allocation of healthcare resources are

sometimes expressed in terms of rights. Article 25.1 of the Universal Declaration of Human Rights states

that every person has the right to a standard of living adequate for the health and well-being of oneself and

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one’s family, including medical care. Other international organizations such as the WHO also recognize

the enjoyment of the highest attainable standard of health as a fundamental right of every human being.

There have been many debates regarding whether there is truly a right to health or to healthcare, given

that rights claims are accompanied by duties and obligations from others. Libertarians, who emphasize

noninterference from the states, would agree that people have a negative right to obtain health insurance

on their own without state restrictions. If people in a society so desire, they can organize themselves so

that everyone in the society can acquire the means to provide their healthcare needs. Nonetheless,

libertarians deny that people have a positive right to have these needs met by others if they could not

afford to purchase insurance coverage on their own.

The libertarian argument, which is an important political theory that elucidates the legitimate purposes

and boundaries of the state, is sometimes juxtaposed with other theories of justice. Justice is about what is

due or owed to persons, and distributive justice in particular deals with just allocation of resources to

address or mitigate incidental inequalities based on moral luck and are beyond people’s control. John

Rawls, one of the most prominent liberal egalitarians in the twentieth century, argued that people should

not be disadvantaged because of various morally arbitrary factors, such as their ethnic background,

geographical location, health status, etc. He argued that the concept of justice as fairness implies that all

people should have access to equal opportunity ranges in their society regardless of whether they were

born rich or poor. Any social or economic inequalities can only be justified if the least-advantaged

members of the society are to benefit from such inequality. Applying these ideas to access to health

insurance, Norman Daniels and others (Saloner and Daniels 2011) have argued that liberal societies have

an obligation to provide at least a decent minimum level of healthcare access (e.g., through affordable

health insurance) to citizens so that their opportunity ranges would not be unduly compromised due to

serious illnesses or disabilities. Healthcare can often maintain or restore normal species functioning and

the array of life plans that people construct for themselves and should be socially guaranteed according to

the liberal egalitarian account.

Nonetheless, it is noteworthy that while health insurance helps reduce general disparities in healthcare

among various socioeconomic groups by improving availability of services that may otherwise be

unaffordable to many, it can also introduce other forms of disparity when those with financial means

can purchase private plans that would allow priority or premium access to various types and qualities of

care that are unavailable to those without economic means. Higher-income earners, such as those in

Germany, can be exempt from supporting the public sickness fund by opting out and purchasing insurance

from private insurers. A flourishing market of private insurance may also bid healthcare providers away

from publicly funded systems and create shortages in the public sector. Without ongoing financial and

political support from the rich and from healthcare providers, there is a worry that the inevitable result will

be tiers that are sharply differentiated in terms of both quality and access for those who depend on social

insurance and publicly funded services. Moreover, studies in the United Kingdom have shown that health

inequalities by class have not been reduced by the presence of universal coverage (Daniels 2013). And as

long as private insurance schemes can deny coverage or charge differential premiums for preexisting

conditions, financial protection for those in such vulnerable positions may continue to be disadvantaged.

Conclusion

As the global population continues to age and live longer, there will be increasingly more pressure for

states to find sustainable ways to ensure that their people are not impoverished by healthcare costs.

However, cost is only one of the factors in promoting reliable access to essential services. As many

countries, particularly those of lower income, strive to provide universal coverage, there are other calls to

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also attend to other infrastructure matters that can help to promote the quality of services that are to be

covered and delivered. Health insurance will need to be complemented with supply-side investments to

ensure better distribution of facilities, healthcare personnel, functional medical equipment, and computer

systems. There will also need to be careful monitoring of various delivery systems to ensure account-

ability and high performance. Without investments in quality, countries run the risk of wasteful increases

in access to unnecessary or poor-quality services (Lagomarsino et al. 2012).

Acknowledgment

I would like to thank Nigel Hee for his assistance with literature review and editing in preparation for this

entry.

Cross-References

▶Access to Health Care

▶Egalitarianism

▶Equality and Equity

▶Justice: Theories of

▶Resource Allocation

▶Right to Health

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