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Health insurance system in the United States of America. Possible ways of implementation of best practice in Ukraine.



M.Kuznetsov
Health insurance system in the United States of America. Possible ways of
implementation of best practice in Ukraine.

Introduction

Since the beginning of Ukrainian independence, healthcare system had been considered one of the most problematic fields in the country. Low quality of services, which appeared as a result of low financing levels has led to a dramatic
drop in health quality of the nation, moreover, boosting the corruption, which existed even during the Soviet era. In general, this issue can be resolved using two different approaches. The first one is reabilitation and modernisation of
existent free healthcare system, however, the past 23 years proved low probability of success of this plan. The second approach transition to wide usage of health insurance. It is obvious, that best experience of developed countries should be utilised during this process. In this article, we will evaluate the health insurance system of the United States of America, as one of the oldest and most complex in the world, and will discuss possible aspects of it, which are suitable
for implementation in Ukrainian reality.

General description

Healthcare system in the United States tends to be one of the most controversial topics. Mostly, adult population receives insurance from their employers, however, certain groups participate in governmentfunded
programs, such as Medicare, Medicaid, the Children’s Health Insurance Program, and the Veterans Health Administration.
The overlap in the data provided is caused by the fact, that certain part of population is insured with more than one program.
Type of insurance program Percent of population enrolled

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The table above clearly illustrates the current situation in healthcare. More than a half of the total population uses insurance provided by employers, where as the number of statefunded programs account for approximately one third of the total population. It should be mentioned. that during the past years, the coverage of state programs has expanded greatly, reducing the number of uninsured population. Thus, it can be stated. that the healthcare system in the USA slightly moved towards the social insurance scheme. Approximately 10% of population purchases insurance on their own, and slightly bigger part is uninsured.

Employer-based insurance

Employerbased insurance is the most vital part of the total health insurance system. Generally, employer pays approximately 85% of the insurance premium for the empolyee, and 75% for employeedependent individuals (i.e., members of the employees family uncapable of personal insurance, usually children), while another 25% share of the premium is paid by the employee himself. However, this payment is tax deductible, that is, deducted from personal income when calculating income tax obligation. Thus, it provides financial bemefit for the person insured. Moreover, insurance payments create tax benefits for the employer as well. Overall, this mechanism has many advantages, as well as a few drawbacks.
We can outline the following benefits.
Financial.
Usually, when employer purchases multiple insurance packages, the insurer is willing to provide a discount, therefore, effectively making cost of insurance of a single employer lower. Organisational.
If we were to calculate time spent on screening of insurance companies, negotiation of claims, etc, it
would become obvious, that consolidation of this process by one entity
(employer) is more efficient.
Drawbacks of this type of insurance mostly are related to organisational
difficulties appearing in the process of changing employer.

USA insurance market overview: Life and health sector

The U.S. insurance industry currently has more than 1,000 L/H insurers and more
than 2,700 P/C insurers.19 Although there are fewer L/H insurers than P/C
insurers, the size of the L/H sector is greater in terms of premium volume and
other metrics. The L/H sector accounts for 58 percent of industry net written
premiums (i.e., direct written premiums less reinsurancebpremiums), with
approximately $645 billion, while the P/C sector accounts for 42 percent with
approximately $460 billion of net written premiums. The L/H sector holds
approximately $5.6 trillion of total assets, while the P/C sector holds
approximately $1.6 trillion. Therefore, we can conclude, that life and health
insurance is crucial to the insurance system of the United States. The difference
between US and Ukrainian insurance markets in this aspect is incredibly sharp,
since the marketdriving
insurance sector in Ukraine is property and casualties
insurance, mostly represented by automobile insurance whereas health insurance
only accounts for ~10% in 2014. The tables below provide information on the
biggest players of the health insurance market in the United states.

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While there are more than 1,000 L/H insurers in the United States, the ten largest
L/H insurance groups by life insurance premiums accounted for more than half of
total nonA&
H L/H sector premiums in 2012. Moreover, the twentyfive
largest
L/H insurance groups by life insurance premiums accounted for more than 82
percent, and the top one hundred accounted for almost 99 percent of all nonA&
H
L/H sector premiums in the United States. Similarly for A&H lines of business,
the ten largest L/H insurance groups accounted for moret han 71 percent of total
premiums. The top twentyfive
groups accounted for more than 85 percent, and
the top one hundred accounted for almost 99 percent of total premiums. The
premiums reflected in Tables 1 and 2 aggregate all L/H sector products and all
geographies of the United States.
Therefore, it is obvious, that the health insurance industry in the USA is highly
consolidated. The decades of development of the industry and fierce competition
led to creation of quite strong entering constrains, making it quite difficult for
new players to penetrate the market
The revenue structure of insurance companies in the USA is quite different from
Ukrainian as well. In particular, share of revenue from investments is higher, as a
result of a more developed financial market. Approximately 75 percent of L/H
sector revenue is derived from premiums charged for insurance and financial
products and services; the remaining 25 percent is largely comprised of earnings
on investments and administrative fees charged for asset management services.
Net written premium is a principal measure of size and growth of the insurance
industry. In 2012, L/H sector aggregate premiums totaled $645 billion, of which
life insurance (individual and group life policies) generated 20 percent, annuity
products generated 53 percent, and the balance originated from accident and
health insurance (e.g., disability or longterm
care needs). As Figure 6 and Table
6 show, premium growth was disrupted by the financial crisis, but L/H sector
aggregate premiums reached record levels in 2012.

f3
Growth of variable annuity premiums is generally correlated with changes in the
performance of equity markets. For example, as markets declined in 2008 and
early 2009, sales of variable annuities decreased and surrenders increased.
However, since 2010, the recovery in the equity markets combined with the low
interest rate environment has led consumers seeking greater returns away from
traditional life insurance products (e.g., fixed annuities and whole life insurance)
and back to variable annuities. Variable annuities offer equitybased
variable
returns (i.e., based on the underlying values of a portfolio of equities). In
addition, variable annuities often include a product feature that guarantees at least
a certain minimum return or withdrawal benefit. Known as “minimum guaranty
provisions,” these product features exposed insurers to market risk during the
financial crisis.
Conclusion and recommendations. Implementation of practice in Ukraine.
In general, the whole healthcare system in the USA as well as health insurance
field have their positive and negative sides. For instance, cost of insurance in the
US makes it unaccessible for certain categories of population, even in presence of
statefinanced
programs. It can be said, that health insurance system is too
complicated without apparent need. Managed care companies, drug prescription
managers, numerous state regulations resulted in incredibly high cost of
healthcare per person. For example, average cost of physician visit in US is more
than twice higher than in bordering Canada, and even three times higher, than in
Germany, while the quality of services is estimated to be similar or in certain
cases lower. Moreover, the total commercialization of health industry led to a
bitter fact, that healthcare is not actually guaranteed for every citizen. According
to OECD data, the USA is the only highlydeveloped
country, that does not
guarantee healthcare for its citizens.
However, average quality of services is quite high, and in view of developed
insurance system. the state does not bear the full cost of providing medical
treatment to the citizens. The organisaion of health insurance system creates
numerous incentives both for employers and employees to use health insurance.
Certain aspects of practice may be used in Ukraine. Following possible
improvements, needed to boost the health insurance can be outlined.
Reorganisation
of stateowned
hospitals
New
legislation, regarding obligatory health insurance
Insurance
taxation benefits for business and citizens
Further
development of financial markets
Establishment
of statefunded
support programs for the groups of population,
unable to purchase insurance
State
regulation of maximum health insurance premiums
Wide
promotional campaign in media, which will inform the citizens about the
unarguable benefits of health insurance.
It can be assumed. that implementation of the abovementioned
changes may lead
to positive changes both in economic situation in Ukraine and health of
population. However, these changes should not be drastic in view of low average
salary in Ukraine, so that population could adapt to the new conditions.
Used sources
1. ANNUAL REPORT ON THE INSURANCE INDUSTRY. Insurance
department of U.S. Treasury, 2013
2. Income, Poverty, and Health Insurance Coverage in the United States:
2010.» U.S. Census Bureau. Issued September 2011.
3. «StateLevel
Trends in EmployerSponsored
Health Insurance.» June 2011
4. Employer Health Benefits: 2008 Summary of Findings, Kaiser Family
Foundation
5. Rand CorporationChanges
in Health Insurance Enrollment Since
20132014
6. SNL Financial insurance sector data

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