Health Insurance: Basic Actuarial Models

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This chapter aims to motivate the need for health insurance, as a tool to transfer the financial consequences of temporary or permanent alterations of individual health conditions, which can cause either health care-related costs or a negative impact on income because of reduced working capacity, or both.

Of course, the range of possible alterations in the individual health status is extremely broad, and consequently the range of possible financial impacts is broad as well, ranging from relatively small and routine expenses (that is, with high probability of occurrence) to huge costs, for example because of surgery needs.

Each individual can easily forecast routine expenses, and then can face these expenses via his/her ordinary income (or, possibly, via savings). Conversely, appropriate insurance covers are needed for low-probability high-cost events. Insurance products must be accordingly shaped, by stating policy conditions such as deductibles, franchises, exclusions, and so on.

The need for (private) health insurance differs considerably across various countries, being related to the amount of health care provided by the public sector. Public health care systems have developed over time, depending on local political, cultural and socio-economic traditions. As a result, different health care arrangements can be found in different countries.

At an individual level, the demand for health care reflects personal education and attitude towards health. As a consequence, the utilization of health services can significantly differ among individuals belonging to the same population.

At a population level, the age structure of the national population constitutes a critical issue in determining the total health care demand and, in particular, the need for public health care.

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