Health insurance models vary from country to country. As highlighted in our first series of articles on international health markets, governments often dictate the role of private and public health insurance within any country. Milliman has produced a new series of blogs focused on the medical underwriting and risk adjustment practices of eight countries: Australia, Ghana, Ireland, New Zealand, Saudi Arabia, South Africa, Spain, and United Arab Emirates. This is the second article in our series.

The Spanish National Health System (NHS) follows an integrated model in which the financing (through general taxes), purchasing, and provision of health services are mainly public. It offers universal coverage and, in accordance with the Spanish Ministry of Health and Social Policy, 95.8% of the total population was covered in 2011.

Since 2002, the organization of the NHS has been decentralized across the 17 autonomous communities in which the territory is divided. The central government is responsible for ensuring equitable access to health services across the territory and keeps its authority over areas such as regulation of pharmaceutical products.

Patients are required to visit the general practitioner assigned to their specific geographic health areas, who in turn refers patients to corresponding specialists as needed.

In April 2012, a health reform introduced different measures to control the public health expenditure, such as the regulation of the conditions to provide health services to undocumented immigrants and the extension of selective copayments on pharmaceutical products. The copayment is established taking into account the level of income and whether the person is retired or actively working. Copayments are not applied in only a few cases, for example the long-term unemployed and low-income groups.

The recent reform establishes different portfolios of services. The basic portfolio comprises the services that are common and free for all eligible Spanish citizens and registered residents. The supplementary portfolio is subject to copayment and includes pharmaceutical, orthotic prosthetics, dietetic and nonurgent transportation services. There are also complementary portfolios defined by each autonomous community, and ancillary portfolios with services not covered by the NHS and for which the cost is paid by the users of the services.

Collaboration exists between the public and private sectors, in order to ensure public assistance in geographic areas where there is a lack of sufficient infrastructure and to relieve waiting lists. Yet the collaboration with the private sector is still relatively small in terms of the total public expenditure.

Another example of public and private collaboration is the special scheme for civil servants and their beneficiaries, the only collective that can choose between the public and private coverage, most of them preferring the latter. According to ICEA (a research arm of the Spanish Insurance Industry), this collective represented around 2 million insureds in 2012, which is 20% of the total 10.5 million of the privately insured population.

Private health insurance represents a relatively small part of the total health expenditure, 5.4% according to 2010 Organisation for Economic Co-operation and Development (OECD) health data. It is mainly purchased as a complementary coverage to avoid waiting lists and to access added-value services, such as individual rooms in hospitals or orthodontic treatments. According to ICEA, approximately 8.5 million people in 2011 contracted private health insurance (excluding administrative mutualism).

There are three main private health products: private medical insurance (PMI) with and without reimbursement, and sickness insurance.

PMI without reimbursement is the most popular product, representing 86% of total private health insurance premiums in 2011, according to ICEA. Under this product the insured has access to a restricted list of suggested specialists.

PMI with reimbursement offers the same coverage as PMI without reimbursement but the insured has a free choice of medical specialists, asking for reimbursement of the cost of the services incurred. Typically, companies offer a reimbursement in the range of 80% to 90%. This type of insurance represented 10% of total premiums in 2011.

Sickness insurance provides an economic subsidy in case of hospitalization or illness, and represented 4% of total premiums in 2011. This product is very popular among the self-employed, because in the case of temporary sickness they do not receive any benefit from the public system.

Group policies represent around 33.5% of policyholders. They enjoy a competitive premium that has been negotiated by the employer for the whole collective as well as being exempt from taxes on insurance premiums.

Companies establish copayments to manage utilization but they are very low when compared with typical copayments in other insurance markets. This is related to the fact that it is only very recently that the public system has considered introducing copayments in non-pharmaceutical health services, and the insured would normally not expect high-cost participation for services that were free of charge in the public system.

With regard to work-related accidents and occupational diseases (workers' compensation), the nonprofit private sector is the leading provider of services through the "Mutualidades de trabajo," which are funded by the social security system, largely through employers' contributions.

Underwriting practice
The Spanish NHS does not apply underwriting as it offers universal coverage to any eligible citizen or resident.

For private companies there are no legal restrictions on underwriting and most insurers require completion of a health questionnaire, declaring all circumstances known by the policyholder that could influence the risk assessment. In the event the policyholder does not declare the known preexisting conditions, the insurer might reject the payment of a claim. There is no such obligation in cases for which the insurer did not require a health questionnaire or did not explicitly ask for the circumstances that could influence the risk assessment; so it is the responsibility of the insurer to carefully design the content of the questionnaire. Common content of the health questionnaire includes questions such as:

- Insured profile: gender, age, weight, etc.
- Self- assessment of current health status
- Frequency of medical reviews and visits to the dentist
- Habits (tobacco, alcohol, sport, risk activities, etc.)
- Previous illnesses and accidents
- Previous hospitalizations and surgery interventions
- Family hereditary diseases
- Pregnancy-related questions
- Current medications

It is not common for the insurer to request a medical examination when selling the policy, although some companies might ask for specific checks for the previous illnesses declared in the questionnaire.

Companies normally set minimum and maximum age limits for new policies.

Policies also include waiting periods that vary among companies and are normally in the range of six to 24 months. Examples of services with waiting periods are pregnancy, surgery interventions, assisted reproduction, psychological treatment, vasectomy, bariatric surgery in morbid obesity, transplants, prosthesis, etc.

PMI with reimbursement includes a maximum sum insured per year and partial sum insured limits (or maximum number of days) per year for general doctor visits, hospitalization, psychiatric hospitalization, labor, ambulance, and assistance to a newborn. The percentage of reimbursement is very similar or slightly lower for international assistance than for national assistance.

PMI without reimbursement limits are normally related to a maximum number of days per year for psychiatric hospitalization and a maximum sum insured for international assistance in case this coverage is included in the product.

Contracts have an annual duration and they are renewed automatically at the end of each year. Notification of cancellation by the policyholder or insurer must be given two months before the renewal. The insurer is free to modify the premium at each renewal.

Regarding risk adjustment, traditionally companies have based premiums on age, gender (which will not be a factor for setting premiums after December 2012, following the EU Gender Directive), and geographical area. New factors and new pricing techniques are being applied by some companies. Among the new rating factors, information about weight, height, occupation, and health habits are starting to be used together with information related with the postal code, such as purchasing habits or socioeconomic level and credit information.

Most advanced techniques for segmentation and risk-adjusted premiums consist of the use of multivariable models that allow for a better understanding of the true effect of each risk factor on the expected cost of claims.

Premiums are calculated annually and can be adjusted as the individual risk profile changes (not caused by illness) but there is no re-underwriting.

Comment
The Spanish NHS is currently under reform to rationalize the health expenditure through the use of selective copayments in the utilization of medical services. There is also an aim to improve the efficiency of the system with tools that allow for evidence-based best practice medical protocols and cost-effective treatments, with more focus on the patient as a whole than on isolated health services. Collaboration with the private sector will certainly help to increase the efficiency of providing services while ensuring the availability of public coverage.

In the private sector, companies will be seeking better segmentation of policyholders, considering new risk factors such as socioeconomic level, purchase habits, or credit history. Multivariate models are being applied for estimating the expected cost of each risk profile and for providing fundamental insights for the underwriting manuals.

Specific underwriting tools would be very beneficial for product design: adapting coverages, proposing different structures of limits, exclusions, and copayments to meet specific population needs, and predictive estimation of the use of insurance.

Group policies constitute a specific target for insurers, although it is a very competitive market with practical difficulties both for underwriting and pricing.

Both in the public and private sector, evidence-based best practice medical protocols would help to improve the utilization efficiency of insurance, while also increasing the quality. The use of performance indicators would help to align incentives of health stakeholders, detecting under- or overutilization of insured segments compared with the benchmarks for each segment.