By A.K. Nandakumar, Ph.D.
Risk pooling, in its various incarnations, has been around for decades as a means to finance health insurance in countries both rich and poor. But do these funding mechanisms work, as currently constituted, in emerging economies? Are they the best way to provide insurance to the poor – and, in particular, those outside the employer-based formal sector?
In the case of low and middle-income countries the emergence of social, or government-mandated, health insurance was part of a larger social protection agenda, tied to the labor movements and geared towards those employed in the formal sector. Benefits tend to be rich and payments shared by the employer and employee (typically a percentage of salary). Administrative arrangements vary considerably across countries in terms of autonomy, institutional home for these schemes and governance structures. Data systems tend to be less sophisticated and, in many instances, countries lack the capacity for contracting with providers and/or monitoring provider performance.
In the past decade there has been a push to use these financing mechanisms to extend coverage to the non-formal sector. One needs to take a step back and question whether insurance mechanisms, as they are currently structured, are the best modality to ensure access to care for the poor and those in the non-formal sector. Some of the critical issues to consider:
- Most of these schemes lack the ability to independently set premiums. While many might have been viable when they were established, they are now in the red for a variety of reasons: salaries have increased at a slower pace than health costs; premiums cannot/have not been changed to keep up with costs; technology and the pressure to contract with private providers have led to cost increases; and, finally, the schemes themselves lack the capacity to manage complex insurance functions.
- Countries where these schemes operate have a large non-formal sector and a fairly small formal sector.
- Expanding these schemes to include the non-formal sector presents additional challenges:
- Enrolling the non-formal sector is difficult.
- Where enrollment of this sector is not compulsory, the scheme will be selected against, further eroding financial viability.
- The government ends up subsidizing premiums of the poor and many categories of the non-formal sector. Over time these schemes end up being dominated by public financing (in one country the inclusion of the poor and non-formal sector meant public financing accounted for over 85% of the revenues).
- With government funds becoming the predominant source of financing, the independence of these schemes – not to mention viability – is closely linked to the health of the government budgets and the government commitment to meet its obligations (even a well functioning scheme can become insolvent very fast).
- The additional burden on already weak internal systems and administrative structures/capabilities increases exponentially.
- The formal sector is faced with declining quality of care, crowded facilities, and the feeling that the scheme created to cater to their needs now serves an entirely different purpose and population.
While insurance and risk pooling mechanisms have worked reasonably well in high-income countries, are they the optimal way to expand coverage and access to care for the poor and those in the non-formal sector in low and middle-income countries? Are other financing mechanisms better suited to achieve this objective? What can be done to strengthen existing schemes so they can operate at levels of efficiency and sophistication in high-income countries? Do we think this is even needed, or will more rudimentary insurance systems suffice?