TOPIC FOUR
HEALTH INSURANCE
4.1 INTRODUCTION
The topic introduces students to concepts of insurance and their application to Health care.
Further students and introduced to demand and supply concepts for health insurance and
factors that determine demand for health insurance and problems associated with demand for
health insurance.
4.2 TOPIC OBJECTIVES
At the end of this lecture you should be able to:
Define health insurance
Explain factors determining demand for health insurance
Explain key terminologies used in health insurance
Discuss main problems associated with demand for health insurance.
4.3 Definition of Insurance, Health Insurance and its desirable characteristics
This sub-topic, introduces the learner to the concepts of insurance. What is insurance and what
are the desirable characteristics of insurance?
- Insurance is a private or public system of protection against the losses that are uncertain.
1
,- The aim of insurance is to reduce the variability in one‟s income by pooling risks with a large
number of people
4.3.1 Desirable characteristics for insurance:
o The number of insured should be large, and they should be independently exposed
to potential risk
o Losses covered should be definite in time, place, and amount
o The chance of loss should be measurable
o The loss should be accidental from view point of person who is insured
- Thus the principle of insurance is based on probabilities, not one of payment for known
future events; though in practice, a prepayment element for health care exists since certain
types of utilization are highly predictable.
- Premiums are paid to an insurance institution which compensates any insured victim of the
event for any financial loss resulting from the event.
- Insurance therefore, helps to lessen and spread risks, and it relies on the fact that what is
unpredictable for an individual is highly predictable for a large number of individuals.
- Health insurance is a private or public system of protection against the losses owing to medical
expenses.
- It can also be defined as a method of providing members of a defined group or community
with protection against the cost of medical care (Atim et al., 1998; Bennett, 2004).
- It is based on the principle of pooling of risks, and therefore, the redistribution of financial
resources from that segment of a community that does not incur high health care costs to those
segments of the community that do.
- Risk pooling occurs when transactors each facing possible large losses agree to contribute a
small premium payment to a common pool, to be used to compensate whichever of them
actually suffers the loss. Contributions must cover losses plus administration costs (adapted
from Evans, 1994).
4.3.2 Terminologies used in Insurance:
- Premium- the periodic payment made on an insurance policy for a given amount of insurance
coverage. Thus an insurance premium is the actual amount of money charged by insurance
2
, companies for active coverage.
3
HEALTH INSURANCE
4.1 INTRODUCTION
The topic introduces students to concepts of insurance and their application to Health care.
Further students and introduced to demand and supply concepts for health insurance and
factors that determine demand for health insurance and problems associated with demand for
health insurance.
4.2 TOPIC OBJECTIVES
At the end of this lecture you should be able to:
Define health insurance
Explain factors determining demand for health insurance
Explain key terminologies used in health insurance
Discuss main problems associated with demand for health insurance.
4.3 Definition of Insurance, Health Insurance and its desirable characteristics
This sub-topic, introduces the learner to the concepts of insurance. What is insurance and what
are the desirable characteristics of insurance?
- Insurance is a private or public system of protection against the losses that are uncertain.
1
,- The aim of insurance is to reduce the variability in one‟s income by pooling risks with a large
number of people
4.3.1 Desirable characteristics for insurance:
o The number of insured should be large, and they should be independently exposed
to potential risk
o Losses covered should be definite in time, place, and amount
o The chance of loss should be measurable
o The loss should be accidental from view point of person who is insured
- Thus the principle of insurance is based on probabilities, not one of payment for known
future events; though in practice, a prepayment element for health care exists since certain
types of utilization are highly predictable.
- Premiums are paid to an insurance institution which compensates any insured victim of the
event for any financial loss resulting from the event.
- Insurance therefore, helps to lessen and spread risks, and it relies on the fact that what is
unpredictable for an individual is highly predictable for a large number of individuals.
- Health insurance is a private or public system of protection against the losses owing to medical
expenses.
- It can also be defined as a method of providing members of a defined group or community
with protection against the cost of medical care (Atim et al., 1998; Bennett, 2004).
- It is based on the principle of pooling of risks, and therefore, the redistribution of financial
resources from that segment of a community that does not incur high health care costs to those
segments of the community that do.
- Risk pooling occurs when transactors each facing possible large losses agree to contribute a
small premium payment to a common pool, to be used to compensate whichever of them
actually suffers the loss. Contributions must cover losses plus administration costs (adapted
from Evans, 1994).
4.3.2 Terminologies used in Insurance:
- Premium- the periodic payment made on an insurance policy for a given amount of insurance
coverage. Thus an insurance premium is the actual amount of money charged by insurance
2
, companies for active coverage.
3
