Voluntary health insurance in the European Union Report prepared for the Directorate General for Employment and Social Affairs of the European Commission, 27 February 2002 Elias Mossialos and Sarah Thomson European Observatory on Health Care Systems and LSE Health & Social Care, London School of Economics and Political Science with (in alphabetical order) Reinhard Busse, Technical University, Berlin Charalambos Economou, National School of Public Health, Athens Margherita Giannoni-Mazzi, University of Perugia Jean Hermesse, Université Catholique de Louvain Tony Hockley, The Policy Analysis Centre, London Maria M Hofmarcher, Institute for Advanced Studies, Vienna Hans Maarse, University of Maastricht Hennamari Mikkola, National Research & Development Centre for Welfare & Health, Helsinki Monica Oliveira, London School of Economics & Political Science Marisol Rodríguez, University of Barcelona Simone Sandier, Arguments Socio-Economiques pour la Santé, Paris Caj Skoglund, BCS Kompetensutveckling AB and The Swedish Welfare Group Philippe Ulmann, Conservatoire National des Arts et Métiers, Paris Karsten Vrangbæk, University of Copenhagen Disclaimer The opinions expressed in this report are those of the authors and do not necessarily reflect the views of the European Commission or the European Observatory on Health Care Systems. i Table of contents Acknowledgements................................................................................................. 1 Executive summary................................................................................................. 2 Introduction ........................................................................................................... 11 Background .......................................................................................................................... 11 Terms of reference............................................................................................................... 11 Outline .................................................................................................................................. 12 Section 1: Context............................................................................................................. 12 Section 2: The market for VHI in the European Union...................................................... 12 Section 3: Access, equity and consumer protection ......................................................... 12 Section 4: Implications for the free movement of people and services within the European Union................................................................................................................................. 12 Section 5: Trends and challenges .................................................................................... 13 Section 6: Concluding remarks......................................................................................... 13 Definitions............................................................................................................................. 13 Methodology ......................................................................................................................... 13 Sources of information...................................................................................................... 13 Comprehensive review of the literature ............................................................................ 14 National experts................................................................................................................14 Study visits........................................................................................................................ 15 Collection of statistical data .............................................................................................. 15 Surveys ............................................................................................................................. 15 Meetings and interviews ................................................................................................... 15 Report limitations ..............................................................................................................16 Section 1: Context................................................................................................. 18 1.1 The rules and arrangements of statutory health care systems ...................................... 18 Universal coverage ........................................................................................................... 18 Mandatory participation..................................................................................................... 19 Comprehensive benefits ................................................................................................... 19 Levels of public expenditure on health care...................................................................... 19 1.2 The size of the market for VHI........................................................................................ 22 1.2.1 Levels of expenditure on VHI................................................................................... 22 1.2.2 Levels of premium income....................................................................................... 25 1.2.3 Levels of coverage................................................................................................... 27 1.3 The demand for VHI ....................................................................................................... 30 1.3.1 Determinants of demand ......................................................................................... 30 1.3.2 Subscriber characteristics........................................................................................ 31 1.4 The regulatory framework for VHI in the European Union ............................................. 39 Background....................................................................................................................... 39 The third non-life insurance directive................................................................................ 40 The general good.............................................................................................................. 41 Further implications of the third non-life insurance directive............................................. 43 Section 2: The market for VHI in the European Union........................................ 44 2.1 Types of VHI in the European Union .............................................................................. 44 2.1.1 Substitutive VHI ....................................................................................................... 45 2.1.2 Complementary and supplementary VHI................................................................. 58 2.2 Market structure ............................................................................................................. 61 2.2.1 Types of insurer ....................................................................................................... 61 2.2.2 Buyer characteristics: individual vs group policies................................................... 64 ii 2.3 Market conduct............................................................................................................... 68 2.3.1 Premium-setting, selection criteria and policy conditions ........................................ 68 2.3.2 The provision of benefits.......................................................................................... 74 2.3.3 Insurers’ relationship with providers......................................................................... 77 2.4 Subscribers’ costs ..........................................................................................................79 2.4.1 The price of premiums............................................................................................. 79 2.4.2 Tax incentives.......................................................................................................... 82 2.5 Insurers’ costs ................................................................................................................ 89 2.5.1 Claims expenditure .................................................................................................. 89 2.5.2 Administrative costs................................................................................................. 91 Section 3: Access, equity and consumer protection .......................................... 94 3.1 Access to health care ..................................................................................................... 94 3.2 Potential barriers to access in VHI markets ................................................................... 97 3.2.1 Price and ability to pay............................................................................................. 97 3.2.2 Non-price barriers .................................................................................................. 100 3.2.3 Asymmetrical information, adverse selection and risk selection in VHI markets... 100 3.2.4 Mitigating risk selection through risk adjustment ................................................... 103 3.2.5 Genetic testing and insurance ............................................................................... 108 3.2.6 Multiple products...................................................................................................