**5.4 Complementary health insurance and administration costs**

In general, although monthly basic insurance premiums fell slightly from 2013 to 2016, they have shown a sustained upward trend in recent years. It seems that the austerity measures during the economic crisis had little impact on the price level (**Figure 5**). To understand the reason for the escalation of premium costs, it is useful to examine the relationship between premium income and claims costs. This helps in analysing the efficiency of CHI in financing health care. The discrepancy between revenue and claims costs shows the transaction costs of using CHI for this key role in health care financing. If this discrepancy increases, it indicates inefficiency as the same number of people is insured but with higher administrative costs. Moreover,


*Note: \*Due to the circumstances of COVID-19, the premium CHI in December 2021 was €12.1 instead of €34.6, as Vzajemna returned €22.5 to policyholders. The average monthly CHI premium was thus €32.72 in 2021, but rose again to €34.6 in January 2022, as the other two CHI companies returned profits to shareholders in the form of dividends. Source: e-Zavarovanja, 2022 [19].*

#### **Table 2.**

*Monthly premiums for CHI (€), April 2022.*

#### **Figure 5.**

*Monthly premiums for CHI (€), March 2016—December 2019. Source: Data from CHI companies (authors' own calculations).*

#### **Figure 6.**

*Revenues and costs in the markets of CHI €, 2006-2019. Source: Slovenian Insurance Supervisory Authority, Annual Report for the years 2007–2020 [22–35] (authors' own calculations).*

in due course, this may undermine the affordability of CHI, especially for poorer households [20].

**Figure 6** shows how claims costs increased between 2007 and 2013 and then decreased slightly in 2014 (due to lower reserve costs, partly due to government pricing policies and covered benefits). Premium income has generally increased since 2006 (with slight decreases in 2010 and 2014). The difference between premiums and claims rose sharply before the crisis, reaching a peak of €64 M in 2009. As a result of the crisis, the premiums declined slightly in 2010, while claims kept on increasing, resulting in the lowest difference between both (€34 M in 2010). In the next 4 years, the revenues from premiums kept on increasing and the difference almost reached the pre-crisis level again in 2014. Another drop in the difference between revenues and claims can be observed in 2016 and 2019, the difference was again back to €65 M. [20, 22–35].

#### **Figure 7.**

*Profits and non-claims costs in the markets of CHI, 2006–2019. Source: Slovenian Insurance Supervisory Authority, Annual Report for the years 2007–2020 [22–35].*

**Figure 7** shows a breakdown of the difference between premium income and non-claims expenditure, suggesting that much of this is due to actual operating costs rather than profits. However, the official profit figures may not fully reflect the difference between revenues and costs [20, 22–35]. However, compared to other countries that provide similar resources to CHI, transaction costs in Slovenia are very low [20]. This may not be too surprising, as Slovenian insurers do not purchase services and should therefore have lower administrative costs. There are also concerns that new solvency requirements could push up transaction costs further, although the extent is not yet fully known. Rising transaction costs should be a focus of regulation to ensure that CHI remains affordable for everyone and that the CHI market is administratively efficient [20, 22–35].

It should also focus on better monitoring so that the market is more transparent for regulatory authorities and consumers. In a truly competitive market, insurers would automatically correct prices downwards when their cost base is reduced. A helpful piece of regulation would be to set a minimum claims ratio so that insurers must spend a minimum share of premium income on health care costs. This would limit transaction costs and help secure affordability in the CHI market. The government should also tighten reporting requirements [20].

Although the administrative costs of CHI are low by international standards, CHI on the other hand incurs transaction costs related to insurers' profits and administrative costs, and indirectly to the costs of government regulation. The main risk of CHI is that transaction costs will continue to increase over time, reducing the administrative efficiency and affordability of this option, especially due to the new solvency requirements [20].

### **5.5 Complementary health insurance and efficiency**

An increase in the efficiency of the health care system in Slovenia had been one of the declarative goals of the introduction of the CHI. It was supposed to reduce the

#### *Complementary Health Insurance in Slovenia DOI: http://dx.doi.org/10.5772/intechopen.105150*

'unnecessary' demand for health services while also raising some additional financial resources for its functioning. One of the reasons for such reasoning lies in the fact that the structure of expenditures of CHI by categories is significantly different from compulsory health insurance. Namely, around 45% of the CHI expenditures are for the reimbursement of copayments on medicines (cf. the expenditures on medicines represent only 11.7% of the expenses of HIIS [36].

One of the disadvantages of CHI, which is rarely mentioned and discussed, is the impact of CHI on the efficiency of health services provision. As discussed above, the levels of copayments differ for different services. While they amount to 10% of the price for most important services, they can amount to as much as 90% of the price for services, less important for health (such as non-urgent transportation). While HIIS as a single provider of compulsory health insurance restricts the health care providers and pays the volume of their services up to a defined plan, the private health insurers offering CHI have no such restrictions. Intuitively, the providers can hence provide an unlimited number of less important services as they are 90% covered by CHI, resulting in less efficient and less cost-effective care provision. While a study, confirming such a theory, has not been conducted yet, the logic of the idea remains.

Another disadvantage of CHI to which not enough attention has been paid is surely its stabilisation role. As discussed in other sections of this chapter, CHI had a huge stabilisation impact in an economic crisis, buffering the negative impacts of higher unemployment. Resulting in a higher premium, the CHI managed to alleviate the impact of the lower incomes and contributions to compulsory health insurance. On the other hand, this enabled the health system, HIIS, and health care providers not to implement organisational changes, cost-effective measures, or increases in efficiency. The waste in the system remained the same, the outcomes are still not discussed and measured, and necessary reforms that would put the patient in the centre of integrated care still seem non-urgent in spite of long waiting times.

As had been established with a specially commissioned analysis of the performance of the Slovenian health system in 2015 by the World Health Organization (WHO) and the European Observatory on Health Systems and Policies [37], CHI played an important role in buffering the shocks experienced by the health system in the times of austerity (the period between 2009−2010 and 2014). These shocks were reflected primarily in a rapid decline in paid contributions against compulsory health insurance as unemployment rose dramatically between the end of 2009 and the first half of 2012<sup>1</sup> [38]. In that period, the Government intervened at various levels to stabilize public finance (e.g., by reducing salaries in the public sector) but in doing so it also further reduced the contributions to health insurance. HIIS acted in two ways—partly their payments were positively affected by the reduction in salaries, but they still reduced payments to hospitals by 15% in 2 years and they shifted some expenditure to CHI. This was possible as HIIS had the authority of establishing the percentage coverage of a range of services, which attracted copayments. Such an approach reduced pressure on HIIS and introduced further 'cost-sharing' between HIIS and the insurance providers of CHI.

<sup>1</sup> In September 2008, the number of unemployed was at its lowest level since January 1992 at 59,303, only to rise in the wake of the crisis to a peak of 129,843 unemployed in January 2014, an increase of 219% [38].
