The Formation and Development Process of Vietnam Health Insurance

-Package health insurance payment: is a health insurance method in which the health insurance agency will be responsible for all medical expenses within the scope of health insurance for the insured person. Package health insurance is a health insurance method in which the health insurance agency will be responsible for all medical expenses within the scope of health insurance for the insured person, except for medical expenses for major surgeries (according to regulations of the health agency).

- Regular health insurance payment: is a health insurance method in which the responsibility of the health insurance agency is limited in proportion to the responsibility and obligations of the insured person.

For developed countries, where the standard of living is high, health insurance activities have existed for a long time and are developed, health insurance can be implemented using both of the above methods. For poor, underdeveloped countries, which have just implemented health insurance activities, the conventional health insurance method is often applied. For the conventional health insurance payment method, there are two forms of insurance participation, which are:

- Compulsory health insurance: implemented for certain subjects according to State regulations, through insurance documents. Whether they want it or not, people in this group must participate in health insurance.

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- Voluntary health insurance: not a mandatory group, depending on needs and capabilities, you can voluntarily participate in health insurance.

Currently, in Vietnam there are types of health insurance such as: compulsory health insurance, free health insurance, health insurance for students, and voluntary health insurance.

- Compulsory health insurance is applied to employees in agencies, units, enterprises and retirees.

- Free health insurance is provided by the state for poor groups, ethnic minorities, policy families and children under 6 years old.

- Student health insurance applies to students studying at schools in the national education system.

- Unemployment insurance is for the remaining subjects not included in the above subjects (Law on Health Insurance, 2008).

The health insurance premium is determined as a percentage of monthly salary or wages, specifically: pension, monthly health insurance allowance or according to the current basic salary. Currently, for the type of family health insurance participation, the premium is 4.5% of the current basic salary, and the state also encourages that if buying health insurance for the whole household (except for those who already have a compulsory health insurance card), the premium will be reduced from the second member onwards. However, this encouragement of the state has not yet been effective in practice. According to the Institute for Legislative Studies (2013), participation in health insurance in our country is following the "reverse selection" mentality, only when sick or about to get sick, people will see the need to buy a health insurance card.

1.3.2. Formation and use of health insurance fund

The Health Insurance Fund is a financial fund whose size depends on the number of contributing members and the level of contribution to the fund by those members. Normally, for humanitarian purposes, not putting business purposes first, the Health Insurance Fund is formed mainly from two main sources: contributions from employers and employees (the contribution rates of the two parties are specifically regulated in different historical periods of each country and are not the same) or only from contributions from health insurance participants.

In Vietnam, the health insurance fund is a financial fund formed from health insurance contributions and other legal sources of revenue, used to pay for medical examination and treatment costs for health insurance participants (accounting for 90% of the fund), management costs of the health insurance organization and other legal costs related to health insurance (accounting for 10% of the fund). The health insurance fund is managed centrally, uniformly, publicly, transparently, ensuring a balance between revenue and expenditure and is protected by the state (Law on Health Insurance, 2008).

Health insurance payment level

For developing countries, newly implemented health insurance activities often apply the conventional health insurance method, which is the health insurance method in which the responsibility of the health insurance agency is limited in proportion to the responsibility and obligations of the insured person. Therefore, Vietnam's health insurance also applies that model, including:

- Pay 100% of health insurance costs.

- The person covered by health insurance co-pays with the health insurance agency depending on each participant (Amended and supplemented Law on Health Insurance, 2014), specifically as follows:

+ For the 100% payment level, medical examination and treatment costs are applied to subjects such as the army, police, people with revolutionary contributions, children under 6 years old, social protection, poor households, relatives of people with revolutionary contributions and children of martyrs.

+ With a payment level of 95%, the health insurance agency pays 95% and the insured person pays 5% of the total medical examination and treatment costs. Including retirees, people with disabilities, and near-poor households. And with a payment level of 80%: The health insurance agency pays 80% and the insured person pays 20% of the total medical examination and treatment costs. This payment level applies to all remaining subjects.

1.4. Characteristics of health insurance activities

Information asymmetry in the health insurance market

Information asymmetry can exist in the health insurance market. This is the phenomenon in which the health insurance buyer knows more about his or her health status than the health insurance seller. According to Pindyck & Rubinfeld (2009), information asymmetry is common in the health insurance market. In some countries, why is it so difficult for people over 65 to buy health insurance, no matter how much the insurance premium is? Older people are much more likely to become seriously ill, but why don't insurance premiums increase to reflect this higher risk? The main reason is information asymmetry. Those who want to buy insurance know their general health status better than any insurance company, no matter how strongly those companies require health assessments. The result is a phenomenon of "adverse selection". Because sick people tend to want more insurance, the proportion of sick people among the insured population will increase. This results in adverse selection in health insurance, with sick people buying health insurance and healthy people buying less. This forces premiums to rise, so that many healthy people will realize that they are less likely to get seriously ill and choose not to buy insurance. This in turn increases the proportion of sick people, forcing premiums to rise again, and so on.

This could, in extreme cases, result in nearly all people who want health insurance being sick themselves.

The consequence of asymmetric information in the goods market, as well as the health insurance market, is that when a buyer considers buying a product in a store, the first thing they need is how useful it is. If this is an item they have used before, this is no longer important, the buyer will choose it immediately without thinking. Suppose this is the first time they buy the item, in addition to the usefulness it brings, the buyer needs to know its quality, price, or at least the address of the manufacturer of the product. When knowing this, and at the same time through available information channels, the buyer can also know who the manufacturer is, the scale and characteristics of the manufacturer, whether it is perfect competition, pure monopoly or oligopoly. However, in reality, information between parties in a commodity transaction is not always transparent. To obtain information, the parties to the transaction may have to spend a lot of money, or need to remove obstacles in providing information such as: requiring information to be provided before the transaction takes place or needing to change the policy accordingly. The purchase and sale of health insurance cards is similar to other purchase and sale transactions in the market. The seller of health insurance is the health insurance agency, and the buyer is the person who needs the health insurance card for medical examination and treatment. In this market, the seller knows very little information about the buyer, the buyer's information only includes name, age, gender and place of residence. The asymmetry of information in this market leads to "adverse selection" and moral hazard.

The phenomenon of “adverse selection”

Adverse selection is a consequence of asymmetric information. The pioneer in studying this phenomenon was Akerlof (1970). Pindyck & Rubinfeld (2009), based on previous studies, defined the phenomenon of “adverse selection” as a form of market failure that occurs when a type of good with different qualities is sold at the same price because due to asymmetric information, people cannot distinguish between the qualities, leading to too many low-quality goods being sold and too few high-quality goods being sold. For example, in the car market

Used cars, there are low-quality and high-quality used cars, but because buyers cannot distinguish between low-quality used cars and high-quality cars, buyers tend to pay the average price. When buyers pay the average price, people with high-quality used cars will not sell, leaving only sellers of low-quality used cars in the market. The market is balanced at the low-quality level. This is a phenomenon of adverse selection of the market. This phenomenon is quite common in types of markets such as credit, insurance, etc. When there is a phenomenon of "adverse selection" due to asymmetric information, the proposed solution to overcome it is signaling (Wilson, 1998; Pindyck & Rubinfeld, 2009). Accordingly, sellers of high-quality used cars can do quality inspections to make buyers more confident, or the common forms when selling products are warranty and maintenance of the product afterwards.

The phenomenon of "moral hazard"

Another consequence of asymmetric information in the health insurance sector is “moral hazard,” which arises from hidden behavior and appears to affect outcomes after the contract is signed (Pindyck & Rubinfeld, 2009). In the health insurance market, moral hazard occurs when there is little incentive to avoid an insured event. The insured may engage in riskier behavior, knowing that some or all of the costs will be transferred to the insurance company. The insurance company does not have full knowledge of the insured’s actions in advance. For example, once a car is insured, the driver may be less careful because he knows that the losses will be borne by the insurance company. A factory owner may be less concerned about fire prevention after purchasing insurance. According to Kotowitz (1998), “moral hazard” is very common in the market, whereby the parties to the contract cannot know clearly the behavior of the partners after the contract is signed. As a result, many contract partners have committed acts that are harmful to the other party after signing the contract. Contracts are also not perfect because it is impossible to stipulate all behaviors in the contract. This is a common form of market failure in general and the health insurance market in particular.

What is the difference between “adverse selection” and “moral hazard”? “Adverse selection” is the result of asymmetric information before the transaction occurs, and “moral hazard” is the result of asymmetric information after the transaction occurs. Asymmetric information can be hidden information (in the case of adverse selection when the seller knows more than the buyer) or hidden behavior (in the case of “moral hazard” when the buyer behaves in a way that the insurance company cannot see). Transactions can include a purchase, a contract, an insurance agreement, or an employment contract. All of them create market failures, that is, the market equilibrium is not optimal. “Moral hazard” arises due to hidden behavior and appears after the contract is signed (Nguyen Trong Hoai, 2006). “Moral hazard” in the health insurance sector occurs when the expected loss from an adverse event in the insurance increases (Pauly, 2007). According to Nguyen Huu Ngoc (2001), health insurance is a publicly provided good because:

Firstly , it is not reserved for anyone, so it is even more impossible to force people to pay directly when using goods that are not reserved for each individual, when they do not have to pay directly, they can still enjoy those goods.

Second , one person's use of health insurance services does not affect another person.

Third , the additional cost of consuming an additional good is usually negligible, almost zero.

Because health insurance is provided publicly, when using a health insurance card, up to 80% of medical expenses are exempted, which leads to abuse due to excessive consumption. Because consumers pay very little for the goods they consume, they will consume those goods until the marginal benefit they receive from those goods is zero. After having a health insurance card, insured people tend to rely on the fact that if they are sick, they will enjoy benefits, so they often do not pay attention to taking care of their own health. Because they rely on having a health insurance card to use the service whenever they need it, this makes them go to the doctor more often, especially for people with chronic diseases, the number of times they use medical services is greater and therefore the cost of the Health Insurance Fund is increased.

Health insurance has to pay them more. The phenomenon of “moral hazard” in the use of health insurance is that people with health insurance cards tend to see doctors more often than people without health insurance cards, they tend to abuse medical services and treatment drugs more than necessary because they know that those costs are borne by the health insurance unit.

Market failure

The insurance market is said to be complete and perfect if it makes it possible to shift risk from risk-averse people to risk-bearers at a certain price. The equilibrium price will make the marginal cost and marginal social benefit equal. In the insurance market, once the adverse selection and moral hazard phenomena appear, the organization of the market will be limited. Therefore, insurance packages with different risks must be sold at different prices corresponding to the level of risk, which will limit the risk for insurance companies (Begg et al., 2005). Obtaining information is a very costly thing. For a product that is likely to cause harm to society, transparency of information about it will help buyers buy less of this product to reduce losses.

In fact, having too much information is not the best thing, and having more information is more expensive and the search for information cannot last forever. Imagine if we spend our whole life looking for a place to build a house that suits us or looking for an ideal partner, this will not be as optimal as finding a place and a partner that are “good enough”. At that time, buyers and sellers will only stop at the optimal level of information just enough to make a decision. For the insurance company, assuming that the insurance company has full information and knows for sure who is a healthy person and who is often sick, the insurance company will certainly not sell any insurance package to anyone. Because, this will definitely cause losses for the seller.

1.5. The formation and development process of Vietnam Health Insurance

In Vietnam, the health insurance policy has been implemented since 1992 according to Decree No. 299/HDBT dated August 15, 1992 of the Council of Ministers (now the Government). Up to now, the health insurance policy has been amended and supplemented three times with 3 Decrees of the Government.

The government has made the health insurance policy increasingly expanded, developed and gradually improved, in line with the socio-economic development of our country through each period. The change in health insurance policy is reflected in the following 3 major stages:

Period from August 1992 to August 1998: The health insurance policy in the early stages of its establishment (the Health Insurance Regulations issued together with Decree No. 299/HDBT dated August 15, 1992 of the Council of Ministers and supplemented by Decree 47/CP issued on June 6, 1994) stipulates that the subjects participating in compulsory health insurance include: cadres, civil servants, public employees, retired cadres, those with loss of working capacity in administrative and career sectors, workers in the state and private production and business sectors if there are 10 or more employees. The contribution rate for compulsory participants is stipulated as 3% of salary and salary allowances, of which employees contribute 1% and Decree No. 47/1994/ND-CP dated June 6, 1994 of the Government amending a number of articles of the Health Insurance Regulations issued under Decree No. 299/HDBT dated August 15, 1992 of the Council of Ministers; Decree No. 58/1998/ND-CP dated August 13, 1998 of the Government promulgating the Health Insurance Regulations, effective from October 1998; Decree No. 63/2005/ND-CP dated May 16, 2005 of the Government promulgating the Health Insurance Regulations replacing Decree No. 58/ND-CP, effective from July 1, 2005. The regulation stipulates that employers pay 2%, other subjects participate in health insurance depending on their ability and needs, on a voluntary basis. Health insurance buyers are guaranteed benefits in both inpatient and outpatient medical care and do not make co-payments. However, with the policy that the health insurance fund pays 100% for people with health insurance cards, the problem of fund abuse has arisen and led to a long-term deficit in the health insurance fund.

Period from September 1998 to June 2005: In the face of increasingly difficult health insurance payment capacity, on August 13, 1998, the Government promptly issued Decree No. 58/1998/ND-CP to expand health insurance policy, diversify types of health insurance to expand health insurance participants. Partial payment of costs for cases of medical examination and treatment upon request or self-selected doctors, applying the regulation of "co-payment" of 20% of medical examination and treatment costs for some subjects as a control measure, against abuse of health insurance funds. With the new regulations, the number of health insurance participants increased, both in compulsory health insurance and voluntary health insurance. During this period, voluntary health insurance increased

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