Health care indemnities that had success and care benefits

Long-Term Care Indemnities

One way in which indemnities have been tried with some success - at least in demonstrations - is to pay for long-term care benefits. Long-term care provides a favorable setting for using indemnities because the services each eligible person wants to use may be quite different, and designing a service-based reimbursement approach to meet these diverse preferences could be excessively complex. Furthermore, such indemnities do not become obsolete as the nature and scope of services change over time.

Stone reviewed several federal and state programs that use indemnities for long-term care benefits. At the federal level, the U.S. Department of Veterans Affairs' Housebound Aid and Attendance Allowance Program provides cash grants to veterans and their surviving spouses who are disabled and need long-term care in the community. In 2001 a single veteran qualifying for this benefit was entitled to a monthly payment of USD 518 in addition to the regular pension of USD 775.

At the state level, researchers at the National Council on Aging identified numerous long-term care indemnity programs. According to Stone, the most ambitious of these was the Cash and Counseling Demonstration and Evaluation, initiated to test the efficiency of "cashing out" Medicaid-funded home and community-based care services. Participating states obtained waivers to allow the payment of cash allowances in lieu of a service package.

The largest program, in Germany, lets beneficiaries living in the community select a cash indemnity, agency services set at twice the value of the indemnity, or a combination of the two. Despite the high "tax" on the indemnity compared with service benefits, 76 percent of the eligible population chose the indemnity in 1998. In a sympathetic review of Stone's paper, Mark Pauly reinforced the idea that indemnity payments, in theory, are the best kind of insurance to have because they provide maximum flexibility on how to use the benefit, and they give the policyholder ideal incentives to consider the costs as well as the benefits of treatment. He noted, however, a significant drawback of long-term care indemnities: the problem of verifying eligibility.

This problem is especially severe for long-term care, where many of the services (for instance, assistance with cleaning and cooking) would be desired by healthy people as well as those who are sick. Pauly noted that the private sector has been very reluctant to sell long-term care indemnity policies. These observations point to a problem (possibly a dilemma) with indemnities. The conditions under which indemnities make the most sense are those in which individuals have a high degree of personal discretion over the choice of a treatment plan. But some of the services in these highly personal plans are likely to be "low-tech" items, such as home care or alternative medicine. As Pauly noted, these are also the types of services that are likely to be valued by healthy people; thus, the verification problem arises. The types of conditions for which indemnities are most practical (for example, a broken arm) are easy to verify, but patients have less discretion over their treatment plans and, therefore, may not value the freedom of choice offered by the indemnity.

Indemnity Health Insurance

Despite its lack of acceptance in the United States, indemnity insurance is the most prevalent form of private health insurance in the Republic of Korea. About 30–40 percent of the population was enrolled in medical indemnity policies in 2002–3, increasing to 80 percent in 2006. These policies pay a lump-sum amount of money in the case of a well-defined illness, typically for the first diagnosis of cancer. In 2005, 8 billion U.S. dollars, or 1.1 percent of the Korean gross domestic product, flowed through indemnity insurance. This compares with about 24 billion U.S. dollars in the Korean national health insurance (NHI) system. One purveyor of indemnity insurance in Korea is American International Group Inc. (AIG), which sells policies that pay a lump-sum benefit if the insured is diagnosed for the first time with cancer during the policy year. In addition to this core coverage, the policies may provide daily hospital cash benefits and surgical expense reimbursement. The policies can be purchased by individuals or made available to employees as a fringe benefit. They can be offered alone or in combination with other benefits.

The Korean health system has several unique features not found in the United States that favor indemnity insurance. One of these is its unified fee system. Direct negotiations (that is, contracts to set fees) between hospitals and private insurers are not allowed. This means that one of the drawbacks of indemnities - private insurers' inability to negotiate prices with providers - is absent from the Korean system. Another feature is Korea's national health insurance system, which started in 1989 with poor benefits. While benefits offered by the NHI have improved, they still are not comprehensive. Patients are exposed to large out-of-pocket costs and financial risks. Thus, the indemnity insurance system in Korea is really a form of supplementary insurance that sits on top of the NHI. It does not totally replace it, as the indemnities proposed in this study would do for Medicare physician fees. Despite these differences, Korean-style indemnity insurance may gain a foothold in the United States. Since 2006, the Conseco Insurance Company has sold a supplementary policy that pays a lumpsum benefit on the first diagnosis of cancer. The policy offers two plan options which pay benefit amounts ranging from USD 10,000 to USD 50,000.

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