TRUST FAMILY HEALTH INSURANCE

COMPANY
AN OUNCE OF PREVENTION IS WORTH A POUND OF CURE.
HEALTH INSURANCE
In health insurance, an individual pays an
annual premium to an insurance company, and
in return the company guarantees to cover
his/her hospital expenses up to a certain limit for
a period of one year.
Give me your money now, and I will pay your
hospitalization needs IF you get seriously sick
requiring hospitalization, within a period of one
year. The insurance company says.
 ADVANTAGE
The individual pays a relatively
small amount to be assured of
relatively big hospitalization
coverage within a period of
year.
DISADVANTAGE
The individual who does not
get seriously sick requiring
hospitalization within the
coverage period is not able to
avail of or utilize health
services. This assumes that
insurance premiums paid by
patient will be forgone in
favour of the insurance
company. Some do not call
this a disadvantage though,
because individuals get
peace of mind when they
are covered by health
insurance.
 INSURANCE
COMPANY

MEDICAL
SPECIALISTS GOVERNMENT
HOSPITAL

GENERAL
PRACTICE
PHYSICIANS

CONSUMER PRIVATE HOSPITAL

PHARMACY

LABORATORY
 Typically, when a patient has the option, he or she would
choose to utilize the more expensive alternative. The
good or service becomes relatively cheap since a third
party pays for all part of the good or service (INSURANCE
EFFECT).
We can also see that the insurance company
participates mainly by paying health service utilization.
This puts the insurance company in a difficult situation.
When all they do is to pay, they will have a little control
over the utilization of goods and services. The are called
INSURANCE HAZARDS. These hazards may cause bloating
of the medical expenses for insurance companies and
eventually bring about bankruptcy of insurance
company.
TYPES OF INSURANCE HAZARDS
INSURANCE HAZARD
As the term implies hazards are events or phenomena which happen
in insurance setups, brought about by poor control of health service
utilization. As said before, this may lead to poor financial performance
or even bankruptcies of insurance companies.

1. Consumer-Initiated moral hazard

It emanates from consumers. It is the tendency for members to use
inappropriate and expensive health services given that a third party
shoulders part or whole of the expenses, thus making it relatively cheap
for the one utilizing health care goods and services.
2. Provider-initiated moral hazard
Emanates from providers like hospitals and medical practitioners. It is the
tendency for providers to charge prices beyond what might be
considered as fair compensation for services rendered, given those insured
become less sensitive to prices (since the third party pay for such)

3. Adverse selection
Emanates the insurance program itself. It is the tendency for members who
are less likely to use program benefits not to enrol and remit contributions
leaving a pool of high risk member population. If an insurance holder is not
able to utilize insurance benefits after several years of paying the insurance
premium, there is a greater chance that the person will discontinue his
enrolment to the insurance program. In all of these, utilization of goods
and services becomes uncontrolled and expensive thus increasing
medical (actuarial) risks. This may lead to poor financial performance or
even the bankruptcy of health insurance companies.
Different Modes of
Private Health
Financing
PRIVATE
INURANCE
Insurance plans are
bought by individuals
for themselves or their
families. These may
also be bought by
employees as
medical benefits for
their employees.
ADVANTAGE
The advantage of private health financing is
that an individual spends money only when he
or she gets sick. Therefore the individual does not
spends anything at all if he or she does not get
sick.
EMPLOYER-
BASED PLANS
Are health packages that
companies administer for
the medical benefits of their
employees. For example,
Meralco has put up its own
hospital for its employees, Ph
Airlines has both an upscale
medical facility and hospital
referral system; PLDT follows
a hospital referral system,
and so does a lot of other
corporations.
PRIVATE
SCHOOLS
Private schools are
required to put up
clinics and set budgets
for the healthcare
needs of their students.
These clinics are
manned by health
officers usually doctors
or school nurse. Some
clinics even have their
own dental clinics.
OUT OF THE
POCKET
Simply taking out your
wallet and paying for
health goods and
services that you utilize.
This is the most dominant
mode of private health
financing in our country.
DISADVANTAGE
The main disadvantage is that an individual may
encounter problems in securing finances or suffer from
financial distress when he/she becomes seriously sick. For
example, an individual who works as a government
employee and does not have any form of insurance
coverage will find it very difficult to secure money when
he needs a coronary artery bypass graft surgery which
costs at least half a million pesos.
HEALTH
MAINTENANCE
ORGANIZATIONS
HMO plans are becoming
a dominant mode of
private health financing
in the country. This mode
is an offshoot of health
insurance. They have
more control over the use
of healthcare benefits
and are therefore able to
make utilization of health
goods and services more
cost effective.
 In HMO plans, the consumer pays a premium which will give him a
comprehensive healthcare program through a package of
benefits. It is not merely a hospitalization coverage but a complete
preventive, curative, and rehabilitative package.
Thus HMO say something quite different from insurance companies.
Give me your money now, and I will take care of your health for a
period of one year.
HMOs organizational structure is quite different from insurance
companies. As you can see focusing again on the consumers, the
main difference between HMOs ad insurance companies is that the
HMOs prevent plan holders from having direct links with the
providers in hospitals and clinics.
 Medical
Health Specialist
Maintenance
Organization

General
Practice
Medical Physician
claims:
CONSUMERS actuarial
risk
Government
Facility

Package of
Benefits
Private Facility
 As you can see in the diagram, the consumers do not have ready the
access to the ones providing the services. The consumers have to pass
through the HMO organization which will regulate the access of
consumers to the medical provider network.
HMOs are able to control actuarial risks or risks on the medical claims. It
depends on the probability of getting ill, multiplied by the cost of
getting ill.
Therefore the HMOs are able to control the costs of medical claims.
1. By limiting the probability of getting ill by covering only a list of illnesses
with specific limitations, and
2. By controlling the costs of getting ill by forging contracts with the
providers and making them part of the HMO setup, or sometimes even
to the extent of employing the providers. This gives them the capability
to control medical service utilization, and bring down the costs of
health care. They are able to do this since they have more control over
the provider of medical care.`
 The package of benefits that HMO(like our company) offers
are very comprehensive. They cover benefits from annual
physical examination to out-patient and in-patient services.
Likewise a whole spectrum of services to surgery up to
rehabilitation.
Take note that they focus on giving preventive and out-
patient services since they are more cost-effective in a lot
of ways. This goes back to the notion that an ounce of
prevention is worth a pound of cure.
PACKAGE OF BENEFITS
Annual Physical Examination, including basic laboratory procedure.
Out-patient benefits, mainly consultation but NOT medication.
Preventive care, well baby visits (costs of vaccines not included)
In patient coverage, hospitalization including professional fees,
laboratory, medications, surgery if needed, etc.
Emergency coverage
Dental, tooth extraction and prophylaxis and cleaning.
Maternal benefits
Optical benefits
Executive check-up
Insurance benefits