America and the Caribbean, and the lowest levels are in Sub-Saharan Africa (from zero to 30 percent). Private Insurance Private health insurance is the most regressive form of health care financing because it is based on premiums that do not vary at all with the buyer’s income level. Hence poorer people, even in upper-income countries, cannot afford such coverage. Private insurance also confronts a fundamental structural problem in dealing with the health sector. Conceptually, insurance is designed to deal with unpredictable risks. That unpredictability leads a wide variety of purchasers to join insurance plans, thereby spreading the risk of loss over a large number of participants. Yet much of the variation in health care costs across individuals is reasonably predictable. Because of age or chronic disease, some of us are just sicker than others and have higher health care costs, including the costs of medicines for conditions such as hypertension and diabetes. Faced with that predictability, health insurers have several choices. The most obvious is to charge higher premiums to people who are likely to use more care, or even refuse to cover the sickest individuals. In either case, people who carry the largest financial burdens, and in that sense are most in need of insurance, are likely to be left without affordable coverage. The difficulties caused by predictability only increase as countries move through the epidemiological transition from communicable to noncommunicable disease, as is happening in many low- and middle-income nations. Alternatively, insurers can charge everyone in a covered population the same rate to encourage widespread insurance purchasing and risk spreading. But then the insurance plan will not be actuarially attractive for the healthiest people with the lowest expected health care costs. The reason is that premiums then have to be set high enough to cover the likely costs of care of high as well as low users. As a result, at least some healthy individuals will decide to take their chances with the costs of getting sick and not buy insurance. As that response continues, insurers are left with a covered group that steadily becomes sicker and more expensive and that has to pay ever-higher premiums. This process is sometimes called the “adverse selection” death spiral. To counteract such a process, private health insurance is often sold on a group basis (for example, to all the employees in a company), and those in the group are not allowed to opt in or out individually. That allows risk to be spread between the healthier and sicker members of the group, although not between healthier and sicker groups. It is only applicable to relatively large groups of employees in well-organized, formal sector enterprises. 108
Pharmaceutical Reform