Topic

Health financing and insurance

Health financing is about how money for care is raised, pooled and spent, and how insurance protects households from large medical bills. Concepts include Risk Pooling, Social Health Insurance, the Beveridge Model and Coinsurance, along with the Risk Adjustment methods used to offset differences in expected cost. Catastrophic Health Expenditure shows where that protection fails.

Concepts in this topic

• Actuarial AnalysisActuarial analysis uses probability and statistics to estimate expected health insurance claims for pricing premiums or contributions and holding reserves.
• Actuarial ProjectionActuarial projection estimates future health spending, insurance claims or fund balances for a population from assumptions on demography, costs and policy.
• Actuarial ValueActuarial value (AV) is the share of the total allowed cost of covered care that a health plan is expected to pay for a standard population.
• Administrative Cost RatioAdministrative cost ratio is the share of an insurer's premium income, or a health system's spending, used for administration rather than claims or care.
• Age RatingAge rating is setting health insurance premiums by the buyer's age, as expected costs rise with age; some laws cap it, such as the US 3:1 adult limit.
• Aggregate Stop-LossAggregate stop-loss is insurance that reimburses a self-funded employer for total health claims above an agreed attachment point in a plan year.
• Aging-Driven Cost GrowthAging-driven cost growth is the share of health spending growth due to an older population, usually smaller than growth from rising incomes and technology.
• Assistive Technology CoverageAssistive technology coverage is how far people needing assistive products, such as wheelchairs or hearing aids, have them, and how payers fund them.
• Attachment PointAn attachment point is the claims level at which stop-loss insurance or health reinsurance starts to pay, per person (specific) or per group (aggregate).
• Benefit DesignBenefit design is the set of health plan rules on covered services, cost sharing, networks and utilisation review that sets what members pay and can use.
• Beveridge ModelThe Beveridge model is a health system funded mainly by general taxation, with universal entitlement and largely public provision, as in the UK NHS.
• Catastrophic Health ExpenditureCatastrophic health expenditure occurs when a household's out-of-pocket health spending exceeds a specified share of its available resources.
• CoinsuranceCoinsurance is the percentage of the allowed cost of a covered healthcare service that an insured person pays under the plan's cost-sharing rules, commonly after satisfying the applicable deductible.
• Coinsurance RateThe specific percentage of a covered service's cost an insured person is responsible for paying under a coinsurance arrangement.
• Community RatingCommunity rating is a health insurance pricing rule that stops premiums varying with health or claims, allowing at most limited variation by age or area.
• Concurrent Risk AdjustmentA risk adjustment method using diagnoses observed in the same period costs are predicted for, unlike prospective adjustment using prior period data.
• Cost SharingCost sharing is the part of the cost of covered care that an insured patient pays directly, through deductibles, co-payments or coinsurance, not premiums.
• Cream SkimmingCream skimming is when an insurer or provider attracts people expected to cost less than it is paid for them and deters those expected to cost more.
• Demographic AdjustmentA risk adjustment method predicting expected costs based on basic characteristics, such as age and sex, without detailed clinical diagnosis information.
• Diagnosis-Based Risk ScoreA diagnosis-based risk score combines coded health conditions, often with demographic factors, to predict an outcome such as future healthcare spending relative to a model-specific reference.
• Experience RatingA method setting premiums based on the actual historical claims experience of a specific individual or group, rather than a community average.
• Health InsuranceHealth insurance is a financing arrangement that pools prepaid contributions and covers specified healthcare costs when insured members need care, thereby sharing financial risk across the insured population.
• Health Spending as GDP ShareHealth spending as GDP share is current health expenditure divided by gross domestic product, used to compare health spending across countries and years.
• Health System FinancingHealth system financing is how a country raises money for health, pools it to share risk and buys services, shaping access and financial protection.
• Hierarchical Condition CategoryA US Medicare Advantage risk classification system grouping diagnosis codes into hierarchical, clinically related categories to predict future healthcare costs.
• Impoverishing Health ExpenditureOut-of-pocket healthcare spending that pushes household income or consumption below an established poverty line, or further below it.
• Medical Loss RatioA regulatory measure requiring insurers to spend a minimum percentage of premium revenue on claims and quality improvement, rather than administration or profit.
• Moral Hazard in Health InsuranceMoral hazard in health insurance is extra healthcare use when cover lowers the price patients pay, and any reduced effort to stay healthy once insured.
• Out-of-Pocket CostThe amount a patient or household pays directly for health care without third-party reimbursement, including applicable cost sharing and uncovered care.
• Pharmacy-Based Risk ScoreA numerical estimate of expected future healthcare costs calculated using prescription drug utilisation patterns as an indicator of health status.
• Predicted CostAn estimate of expected future healthcare expenditure generated using a risk adjustment model incorporating demographics, diagnoses, and prior utilisation.
• Programme BudgetingA budgeting approach organising health spending around specific programmes or disease areas rather than input categories, allowing cross-programme comparison.
• Prospective Risk AdjustmentAn approach that uses characteristics recorded before a target period to predict that period’s expected health care needs or spending, often to adjust prospective payments across populations with different risk.
• Retrospective Risk AdjustmentA risk adjustment method calculating payment adjustments after a coverage period ends, based on actual observed diagnoses and costs.
• Risk AdjustmentRisk adjustment makes outcomes, costs, utilisation or payments more comparable by accounting for differences in characteristics that affect expected results but are not the focus of the comparison.
• Risk PoolingRisk pooling is the accumulation and management of prepaid health funds for a defined population so that the financial consequences of health-care need are shared across members rather than borne solely by each person when illness occurs.
• Risk ScoreA numerical summary of measured predictors used to estimate or rank the likelihood of a specified future outcome in a defined population and time horizon.
• Social Health InsuranceSocial health insurance is a publicly mandated arrangement that pools prepaid funds, commonly from compulsory contributions and public transfers, to finance defined health care entitlements for covered people.
• Socioeconomic AdjustmentA modification to a risk adjustment or payment formula accounting for added costs of caring for socioeconomically disadvantaged populations.
• Specific Stop-LossA reinsurance form protecting a self-insured employer against a single enrollee's claims exceeding a predefined threshold, unlike aggregate stop-loss.
• Stop-LossA health financing risk protection arrangement that reimburses eligible individual or aggregate claims above a specified attachment point, subject to the contract’s limits and exclusions.
• Take-Up RateThe proportion of individuals eligible for an insurance product or subsidy who actually enrol, assessing a coverage programme's effectiveness.
• Universal Health CoverageUniversal health coverage (UHC) means everyone can use the quality health services they need, when and where they need them, without financial hardship.