**2. Health insurance contract**

Generally, many people think health insurance is commercial insurance, which is a rational and good instrument to overcome uncertainty of health care needs, especially in high-cost health care. Not many people understand social health insurance (SHI) schemes as a solution to financing health care for everyone. Some Muslim leaders and scholars (those who are preaching Islamic religion) mistakenly consider health insurance as not meeting Sharia requirements. Some of them understand health insurance as a trade of intangible products which violates the principle of Sharia, the Islamic law. In a narrow definition, a health insurance policy is a commercial transaction between one party to an institution called insurer of an intangible product or service which consider *gharar* in Islamic thought. However, current Muslim scholars agree to modify the meeting of mind of insurance contract as *hibah,* or donation for general benefit of all members of insurance. This school of thought then delivers an Islamic version of insurance mechanism called *takaful,* based on mutual help principle. In western countries, this mutual help is called a risk-sharing arrangement.

In wider definition of minimizing uncertainty, a publicly funded health care system such as the NHS can be considered providing health insurance for all people. When a country provides UHC using funding from general tax revenue, there is no uncertainty of health care needs at an individual level in the country applying NHS model. However, not all countries are able to establish and finance an NHS model. Many low and middle-income countries are looking for financing schemes that gradually meet the health care needs of all people in the country. One of the essential elements of the objectives of UHC is equity health financing, which means that financing for health care by individual is based on the ability of an individual to contribute (to pay), but the health care services consumed by the individual are based on his/her health care needs. This equitable financing can only be achieved by publicly funded system, based on tax-funded or social health insurance (SHI) mechanism. Once there is a pool-fund, the purchasing of health care for everyone should be managed effectively and efficiently.

#### *The Advantage of Single-Payer National Insurance DOI: http://dx.doi.org/10.5772/intechopen.105692*

Some country leaders may be trapped to rely on commercial health insurance (CHI) instead of SHI. Basically, both CHI and SHI share the characteristics of insurance contracts. The key difference between CHI and SHI is nature of entering into insurance contract. The CHI is voluntary transaction while the SHI is mandatory for individuals to enter into an insurance contract. Another key difference between CHI and SHI is the premium for CHI is based on the levels of health risks while the premium (often called "contribution") for SHI is based on a proportion of individual income or salary. The SHI can be implemented using multiple or single organizations. If the SHI scheme is administered by a single organization, a government agency, or a quasi-government organization, it is called a National Health Insurance (NHI) such as implemented in South Korea, Taiwan, the Philippines, and Indonesia. In many other countries, the SHI schemes are administered by various organizations such as implemented in Germany, French, and Japan.

An insurance contract stipulates right and obligation that bind each party. There are four distinct insurance contracts applicable to CHI and SHI: *conditional, unilateral, aleatory,* and *adhesion* [12, 13]. Both CHI and SHI schemes share at least three types of contracts. The main difference between CHI and SHI contract is the CHI use contract called *insurance policy* while the SHI utilizes regulation to mandate every individual in the country to join SHI. Both insurance policy (contract) and regulation of SHI provide rights and obligations of individuals and the insurers, insurance agencies, or administrators.

Due to the uncertain nature of health care needs, the obligation of an insurer (both CHI and SHI) is *conditional* upon the occurrence of an illness or accident generating health care needs. This conditional contract needs deep understanding of all people to implement an NHI scheme to comply with regular contributions, even if they are healthy and have never utilized the benefit for years. In Indonesia, at the beginning of the implementation of SHI, many people questioned, where their money goes (of contribution paid) for many years, despite they have never used any benefits. Many Islamic scholars question this conditional nature as not meeting the Islamic Sharia law creating challenges in countries with significant number of Muslim populations.

The 2nd characteristic of the insurance contract is *unilateral*. This unilateral contract is to compensate conditional contract that in favor of the insurer. Only insurer can be contested by policyholder if the insurer fails to meet its obligation. Policyholders could not be contested to the court for failure to pay contribution. It simply lapses the contract, and no benefit could be utilized by the policyholder.

The 3rd characteristic of insurance contract is *aleatory* meaning the asymmetry in rights and obligations of parties (insured and insurer). This aleatory contract legally allows unequal rights and obligations of the amount of money of insured and insurer. In CHI scheme, a policyholder may pay premium for only months (say \$100 per month) then she/he suffers from heart attack and \$100,000 for a bypass cardiac surgery, there is no obligation for the policyholder to make up the \$99,800 difference. The insurer's right is only a two-month premium of \$200 (which is the obligation of the insured). The insured right is \$100,000 worth of surgical procedures, although the insured only pay \$200. On the other hand, if the insured continuously receive premiums for 20 consecutive years of \$100 per month (so total is 12 months x \$ 100 x 20 years = \$ 24,000) but she/he has never suffered from any illness—never claim (the trigger for the obligation of the insurer), the insurer has no obligation to return the \$ 24,000 money the insured had paid the premium. A similar aleatory characteristic also applies in SHI scheme.

It is this contract that differs from the term of prepayment that is often used in some health care financing papers. The term "prepaid health care" was first used by Paul Ellwood in the USA for the Health Maintenance Organization (HMO) contract in 1973 just to get acceptance by the American Medical Association that opposed health insurance scheme at that time [14]. The term "prepayment" may be misleading to describe health care financing because of this aleatory contract. The term prepaid or prepayment as often used in mobile phone business is appropriate because the payer can consume phone service up to the amount paid in advance.

The last characteristic of insurance contract is called *adhesion*, in which one party is much weaker than the other. It is a type of information asymmetry where the prospect (a person who will purchase insurance) has no way to negotiate the price or the benefit. It is simply a "take it or leave it" transaction. Because of this contract nature, insurance businesses are heavily regulated to protect policyholders from unfair business practices by insurers. In SHI scheme detailed regulation is needed and oversight commission is in place to ensure that policyholders or members of SHI receive fair treatment.
