Abstract
In June 2011, the conference entitled ‘Insurance. Inequality. Health. Economic modeling of how health insurance systems shape inequalities’ took place in Darmstadt, Germany. The participants were researchers from all around the world. Presenters and distinguished invited speakers came together to discuss recent research results on various aspects of the health insurance system. The overarching aim was to clarify to what extent insurance markets, social insurance schemes, socioeconomic inequalities and health interact with each other.
The 2011 conference was the second time that the organizing committee, Martin Karlsson, Therese Nilsson and Carl Hampus Lyttkens, invited 40 health economists from all around the world to Darmstadt, Germany, to discuss recent research on health and inequality. This year, the focus was on the mechanisms of the health insurance system. The importance of the sector is evident: health insurers have the responsibility to secure access to healthcare in society. The challenge of the meeting was to answer three main questions: how does cost sharing determine the demand and supply side of healthcare? How can unequally distributed information between the actors be identified and evaluated? And, in conclusion, what advice can be given to health policy makers? Impressive new results were presented and lively debates were initiated during and between the sessions.
Invited speakers
During the conference, five distinguished guest economists gave talks in their fields of research.
Louis Eeckhoudt, who pursues research projects at IÉSEG (Lille, France) and the Center for Operations Research and Econometrics (Louvain, Belgium), gave a talk on risk, inequality and stochastic dominance in the framework of either risk or inequality analysis. Using the idea that decision-makers are correlation averse (i.e., they like to ‘combine good with bad’), it was shown that such a preference has implications for the interpretation of the signs of successive derivatives of the utility function beyond the first and second orders. In turn, information about these signs has implications for the analysis and perception of policies that transform income distribution.
Albert Ma, from Boston University (MA, USA), presented his work related to insurance pricing in the context of US healthcare reform. A theoretical model was considered to compare experience rating with community rating. The model results revealed that health plan premiums tend to rise with experience rating. The suggested solution was to use community rating instead of experience rating, which would eliminate this upward spiral effect.
The plenary speaker, Pierre-Yves Geoffard, from the Paris School of Economics (Paris, France), presented microsimulated models to evaluate the performance of the current French health insurance system. The simulated reforms were induced by annual deductibles and a cap on annual out-of-pocket (OOP) payments. The distribution of OOP payments for individuals was used as an indicator for the efficiency (risk-sharing) and equity features of an insurance system. The study revealed that the current insurance system was dominated by the simulated reforms. Moreover, identical deductibles for everybody and a health status-dependent ceiling improved equity. The simulated models have no differences in OOP payment effects if deductibles and ceilings depend on individual income.
In her plenary speech, Sonia Bhalotra from Bristol University (Bristol, UK) summarized her studies of the long-term impacts of early-life health interventions on later life and intergenerational outcomes. Using US data, she found that pneumonia exposure in early childhood scars later life education and earnings and increases disability risk. White Americans and African–Americans both experienced reduced pneumonia mortality after 1937, owing to the introduction of sulfa drugs. However, African–Americans were unable to translate their improved endowments into improved adult socioeconomic status. Furthermore, in a study of the heights of Indian men and women, Bhalotra found that while exposure to disease at birth lowered adult stature for both sexes, adverse income and rainfall in the region and year at birth only impaired height growth for women, suggesting that men are relatively protected against these effects.
Joan Costa-I-Font, from the London School of Economics (London, UK), presented his findings concerning the persistence of health inequalities in England. He found that despite government interventions to reduce health inequalities, there has been little variation in the patterns of health inequalities in England between 1997 and 2007. His work demonstrated that there are no significant differences among health inequality patterns of spearhead areas (local authority areas in England with the worst health and deprivation indicators) and nonspearhead areas.
Referring to the aim of the conference, a keynote speaker was also invited to discuss the mechanisms of health inequalities and their relation to the insurance system from a completely different point of view. It is often argued that the use of genetic information can be of interest for insurance markets. Bengt O Bengtsson, Professor of Genetics at Lund University (Lund, Sweden), gave a talk on genetics and disease. The audience was taken on a journey through the history of research on inheritance. New understandings about the humans studied – patients, populations, families and individuals – arose during different stages of research from the 1860s to the present day. In recent decades, the overall goal of genetic research has been the sequencing of the human genome, by which one has hoped to obtain an essential understanding of human life and the causes of disease. The sequencing goal was accomplished at the beginning of this century, but did it reach the proclaimed aims? ‘No’ was the answer from Bengtsson. Recent genetic research results demonstrate that there are too many genetic variants, each with too little genetic effects for it to be possible to make quantitatively relevant predictions about common diseases – at least from the point of view of individuals. Thus, uncertainty prevails. However, this ‘failure’ might indeed be a gain to society, since more precise predictions of disease would often lead to controversial dilemmas, which are difficult to resolve in a democratic manner.
Health policy
Policy-relevant evidence and implications regarding health insurance systems was one main aspect of the conference. Lorens Helmchen (George Mason University, Washington, DC, USA) looked at how incentives can be implemented to reduce expenses in the US healthcare system. For this purpose, he introduced an approach based on negative copayments – that is, offering a cash benefit to patients if they choose less expensive care.
Nicolas R Ziebarth (DIW Berlin, Germany) evaluated the effectiveness of different cost-containment measures in Germany to reduce moral hazard and public health expenditures in the market of convalescent care. Ziebarth showed that health reforms implemented in Germany after 1997 were relatively successful in decreasing demand for convalescent care therapies. Mathias Kifmann (Hamburg University, Germany) analyzed the welfare effects of premium subsidies as an alternative to social health insurance. He showed that effects are determined by the relationship between health and productivity. If a positive correlation exists, it is optimal to combine the premium subsidies with social insurance. Maria Trottmann (University of Zurich, Switzerland) estimated the effects of supply- and demand-side cost sharing on healthcare expenditures in Switzerland. She found that both types of cost sharing are effective in decreasing the use of medical services, thus resulting in efficient consumption of healthcare services.
Robert Nuscheler (University of Augsburg, Germany) presented a theoretical political economy model of long-term care financing. The negative association of income inequality and public spending on long-term care found in data from the Organisation for Economic Cooperation and Development can be supported as a political equilibrium effect. Similarly, the positive correlation between such spending and the old age dependency ratio can be explained. This result hinges on both the substitutability of formal and informal care and the elasticity of informal caregiving. Daniele Fabbri (University of Bologna, Italy) emphasized the redistributive effects of buying supplementary private health insurance within the Italian healthcare system. His findings suggest that people with supplementary private health insurance benefit less from public healthcare provision, but still finance it via tax payments.
In China, the responsibility for subsidized health insurance and the provision of health services has been shifting from the central government to local authorities. Jiwei Qian (National University of Singapore, Singapore) presented a theoretical model that analyzes the local government incentives to maximize their revenues under a decentralized regulatory framework. The study predicts that local authorities will have an incentive to increase the number of enrollments in social insurance plans and, in extreme cases, private insurance can be ruled out from the market. The study suggests that the central government should take this incentive edge of local authorities into account when designing policies.
Information asymmetries
The evaluation and measurement of market efficiency was another important topic at the conference. Here, the unequal distribution of information on insurance markets was the focus of interest. If relevant information on risk type is not used for calculating the risk premium by the insurer, this can cause the whole market to fail Citation[1]. Despite existing empirical evidence on moral hazard and adverse selection, meaning that people with costly behavior/characteristics overwhelm the market, advantageous selection was found to be a more common phenomenon in the evaluated insurance markets. Thomas Buchmueller (University of Michigan, MI, USA) found advantageous selection to be an outcome in the market for private health insurance in Australia. In his econometric framework, he accounts for variables capturing individual risk tolerance, cognition and income. His findings suggest income to be a very important factor driving the existence of advantageous selection. Another study dealing with individual risk preferences was provided by Hendrik Schmitz (RWI-Essen, Essen, Germany). He analyzed the private supplementary health insurance market in Germany. Using a self-assessed measure for risk tolerance, he found risk aversion to be a direct source of advantageous selection for male customers.
The switching of individuals between private and public health insurance in Germany was analyzed by Martina Grunow (University of Augsburg). She provided evidence that there is a systematic switching of bad risks from the private market into the public risk pool. Furthermore, she hypothesized that private health insurers are able to drive bad risks out of the market. She suggested that the participation of private health insurers with the existing risk structure compensation scheme might solve this problem.
Martin Karlsson (Technische Universität Darmstadt, Germany), also studying the health insurance market in Germany, took advantage of the fact that privately insured people have the opportunity to choose their degree of coverage. Variation in individual insurance demand reveals information about unobservable parameters of the customers’ utility function, such as individual risk and preferences. Hence, he was able to estimate the distribution of these unobservables, but the net effect of adverse and advantageous selection remains unclear. The existing literature on the detection of information asymmetries in insurance markets is a very broad field. One main issue when measuring (self-) selection in insurance markets arises owing to the fact that private information, by definition, cannot be detected easily. Hence, the procedures used for these purposes also only work under certain assumptions.
Focusing on an often-used approach for detecting specific sources of information asymmetries, Florian Klohn (Technische Universität Darmstadt) proposed that it can lead to the wrong conclusions being drawn. He showed that under specific circumstances, the interpretation of a measured selection effect may even change from advantageous to adverse selection, and vice versa. Adalbert Mayer (Washington College, MD, USA) proposed a new test for the detection of heterogeneous risk attitudes. He used available information on individual risk preferences, assuming that the population can be split into bold and timid types. Hence, his approach allows the detection of information asymmetries, even if no data on individual risk are available.
Developing countries
Owing to the international theme of the conference, informative evidence regarding the health situation in developing countries was also analyzed. Amy Yaly (CRIEF, Université de Poitiers, France) presented an overlapping generation model to investigate the long-term impacts of epidemics on economic growth. The study revealed that a correlation exists between the capital-level health sector investment and the prevalence of disease. The paper suggested that epidemic prevention campaigns should take into account health sector investment and disease-management programs for the effective control of epidemics in developing countries. Stefan Pichler (Technische Universität Darmstadt) also dealt with a similar topic, estimating the effects of the AIDS pandemic on the economic performance of the most heavily affected HIV countries. He found that the effects vary significantly between countries. A considerable negative impact was measured for Sub-Saharan Africa. In five developing countries (South Africa, Malawi, Swaziland, Lesotho and Zambia), a large impact of HIV on living standards was noticed. Mohammad Iftekher Hossian (University of York, UK) investigated the impact of health-related programs on the health status of women and children in Bangladesh. He observed a positive impact of social safety net programs on the health status of children in seasonally famine-affected areas. Futhermore, the Bangladesh Rural Advancement Committee was found to be effective in improving the health status of its female members residing in urban areas.
Conclusion
The conference provided an excellent platform for its participants to discuss and share their research on the interconnected concepts of insurance, inequality and health. Three main results were revealed from the various sessions of the weekend. First, it was concluded that both the supply- and demand-side of medical services is determined by several factors. In particular, cost-sharing models play an important role when the aim is a decrease in the use of health services. Second, it has been established that the methods used to measure and derive implications of information asymmetries in insurance markets have developed strongly in recent years, but open issues still remain in the field. Nevertheless, from a welfare perspective, there is a consensus that asymmetric information should be weakened to increase the efficiency of insurance markets. However, more importantly, it has to be kept in mind that welfare might also be affected by the redistribution of wealth. Finally, presented works showed that modern economic methods are able to evaluate the health situation of individuals and populations. They can provide fruitful advice to health policy decision-makers and thus are an important tool to enable better functioning of healthcare systems.
Acknowledgements
The authors would like to thank the Deutsche Forschungsgemeinschaft for providing financial support for realizing the conference.
Financial & competing interests disclosure
The authors have no relevant affiliations or financial involvement with any organization or entity with a financial interest in or financial conflict with the subject matter or materials discussed in the manuscript. This includes employment, consultancies, honoraria, stock ownership or options, expert testimony, grants or patents received or pending, or royalties.
No writing assistance was utilized in the production of this manuscript.
Reference
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