The Basics of Health Insurance

Every individual, no matter how healthy he or she is, needs medical care at some point in time. This could be preventive care or treatment for some illness or injuries. This medical care comes with payment of fees in one form or the other. Affordability of such fees at the point of use may be difficult. Health insurance provides a mechanism which makes the payment of such fees relatively easier. Health Insurance is a system in which  prospective consumers of care make payment to a third party in the form of an insurance scheme, which in the event of future illness will pay the provider of care (health facility) some or all of the expenses incurred. It is a type of insurance whereby the insurer (insurance agent) pays the medical costs of the insured (the policy holder) if the insured becomes sick due to covered causes or due to accidents. The advantage of this of this system is that it converts unpredictable future expenses into payments that can be budgeted for in advance.
The concept of health insurance was first proposed in 1694 in the United Kingdom. In the late 19th century, early insurance was actually disability insurance that covered cost of emergency care for injuries that could lead to disability. Today health insurance schemes cover a wider area of health care to include the cost of routine, preventive, and curative health care procedures.
Health insurance can also be traced to medieval Europe when labour unions, associations of employers of labour and craftsmen formed guilds which in turn created funds to help members in times of need on account of illness. They started with cash benefits but later broadened the scope to request doctors to certify illnesses and paid them to provide health care for members. New incentives then came from employers with the scheme becoming compulsory as employers in specific high-risk industries such as mining, began to make employment often tied together with willingness to pay contributions (premiums). With these came the development of earnings-related contributions rather than risks-related contributions. This potential for such solidarity was exploited in Germany in 1883, Austria in 1887, Norway in 1902 and the United Kingdom in 1910. By the early 1930s, compulsory health insurance had been developed in most industrialized countries of Europe under the name of sickness and maternity insurance.
There are various types of health insurance scheme, the basic ones being private health insurance, Social health insurance and Community based health insurance. The private health insurance scheme is a contract between a private insurance company and the insured which could be for groups like companies, labour unions, professional associations of for individuals. The main distinguishing factor is that it uses the method of risk adjustment (assessing the type of health conditions that individuals have) and the benefits are related to the premium paid. Social health insurance is an insurance scheme provided by government or not-for-profit organizations that guarantee citizens financial benefits for events which are beyond the individual’s control, such as old age, disability and poor health. The premium (contribution)is made irrespective of the health needs and is usually based on employment and income. Social health insurance is based on the principle of solidarity and the contributions are based on ability to pay. The funds received are pooled together among a large population and it enhances the security of each individual in the group. Higher income earners will subsidize those with lower income and those with lower health needs will subsidize those with higher health needs. Community based health insurance is normally for the rural areas and mostly localized, e.g. Gwer East Mutual Health Organization’s (GEMHO) community-based health insurance scheme in Benue State, Nigeria and Shonga community based health insurance scheme in Kwara State, Nigeria, among others.

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