Social Health Insurance

Why Do Nations Consider Social Insurance?

• Diseases and illnesses are uncertain; serious illnesses can bankrupt families;

• Health and health care are basic necessities for life, Equitable access to health care is a national goal for most countries

• Insurance (pooling risks) enhance people’s well-being and prevent impoverishment

Rely On Free Market For Insurance?

• Market and competition deal with efficient allocation of resources, not EQUITY

• There are serious market failures in the insurance market and in the health services markets. Regulations have not been able to effectively remedy the market failures

• Social insurance is a major approach to promote equity and address these market failures

Failures In The Private Insurance Market

Asymmetry of Information

Adverse Selection by insurance

buyers

Absence of Optimal Insurance

Results

Risk Selection by insurance company

Elderly and less healthy people left

uninsured

From NHS to SHI

• In the post-colonial era, most low-income countries created large public health care delivery systems modeled after the British National Health Service (NHS).

• These NHS-like systems deliver medical care through publicly operated delivery systems financed through general tax revenues.

• They typically charge at most nominal user fees in order to insure that income is not a barrier to medical care (World Bank, 1987).

• However, rapid medical cost inflation combined with already bloated budgets caused many governments to rethink the policy of publicly financed and delivered health care

Rely On The Government For Insurance?

• There are serious government failures: Vested interest politicsGovernment operates as a monopolyGovernment manages by top down

hierarchy, higher ranked officials’ interests dominant over common people’s interest

Government manages by bureaucratic rules that stifle innovation and create inefficiency

Government Failures

• Distorted Payment-Misallocation of Resources

• Inequity

• Inefficiency/Higher Costs

• Unfriendly to Users• Possible Corruption

Vested Interest Politics

Public Monopoly,Poor Public

Administration

Social Health Insurance

• A popular approach to health care reform in developing countries is social health insurance (SI).

• SI plans in many developing countries finance medical care through mandatory payroll taxes and allow beneficiaries to purchase medical care from both private and public providers.

Social Health Insurance

• The movement towards SI has been motivated not only out of the desire to expand insurance coverage, but also to reduce financial pressure on public budgets (Gertler, 1998).

• SI is seen as a way to shift a portion of the public burden of delivering and financing health care to the private sector.

Social Health Insurance

• Social health insurance (SHI) is one form of financing health care.

• It is considered as 'prospective' financing where funds are pooled or collected in advance, mainly in the form of regular contributions from insurance fund members, employers and the government (Whitaker 2004).

• It addresses inequities in health financing where the 'healthy pays for the sick' and 'those who can afford medical care subsidizes those who cannot'.

Special Features of Social Insurance

• Mandatory for designated population to avoid adverse and risk selections

• A social contract between government and the enrollees

• Eligibility for benefits require that the enrollee has paid the premium (contribution) for a minimum period. Thus SI is not a right of every citizen, and not a welfare program

• Financially autonomous and has to maintain its own solvency

Advantages of Social Insurance

• Pools risks widely• Can improve equity• Mobilizes financial resources for health care

from workers in the formal sector• Low administrative costs• Can control health expenditure inflation if the

program is designed properly

Disadvantages of Social Insurance

• Requires sophisticated knowledge and organization to do it properly

• Alters economic relationship• Alters locus of financial power and this power

can be misused• Can’t provide universal coverage unless the

government subsidizes the farmers and workers in the informal sector

SHI: Some Examples

• SHI has the potential to create large risk pools, and to subsidize premiums for poorer members.

• Schemes of this nature are widespread in OECD countries, Latin America, and Eastern Europe, and also exist in some countries in Africa (Egypt, Senegal) and Asia (I.R.Iran, Indonesia, the Philippines).

Bilateral Exchange Model for Goods

Consumers Providers

Service

MoneyHospitals

Clinics Physicians

Trilateral Exchange Model for Goods

Consumers Providers

Service

User feesHospitals Clinics

Physicians

Financing Organization

Treasury

Taxes Premiums

Payments

Shortcomings of SHI in Poor Countries

• Although in theory social health insurance (SHI) has the most potential to achieve universal coverage, in practice this has been difficult to achieve in low-income countries.

• Among the main distinguishing features of SHI are the facts that membership is mandatory, and that premiums set are in proportion to income.

Shortcomings of SHI in Poor Countries

• Social insurance schemes require strong institutional capacities, especially for revenue collection.

• In low- and middle-income countries, where the majority of the population are employed in the informal sector (which in some countries absorbs 80 per cent of the economically active population) and where there are large rural populations, weak administrative capacity, and a lack of government stewardship, SHI is generally not considered a viable option.

Alternatives to a Failed SHI

• Having failed to extend SHI to the informal economy, several countries have opted to create a parallel system financed by taxation, with separate facilities operated by health ministries.

• Such facilities commonly deliver health care that is more limited and of poorer quality than the care offered by facilities accessible to insurance scheme members.

Alternatives to a Failed SHI

• Some schemes, however, have managed to extend coverage to workers in the informal economy. Examples of such schemes are the Seguro Popular de Salud (SPS) in Mexico and the universal coverage (UC) scheme in Thailand and the National Health Insurance Scheme (NHIS) in Ghana.

Major Planning Issues

• Covered population/eligibility• Enrollment/premium collection• Benefit package• Costing/financing• Macro organization

Public, Semi-public, Private non-profit, for-profit

Monopoly or competition• Payment system• Administrative systems

Efficiency and the cost of reaching poor people

• The administrative costs of SHI in Western European countries amount to about five per cent of total fund revenues.

• Large formal sectors, significant and growing urban populations, and large risk pools have enabled SHI schemes in Europe to be efficient and to guarantee quality of care.

Efficiency and the cost of reaching poor people

• In low-income countries, however, the administrative cost of covering large populations of informal workers can be significant.

• Collection costs for SHI systems are substantial compared with general tax collection (which needs to be collected for other puposes anyway).

• For this reason, schemes aiming to extend coverage to the informal sector depend largely on general tax revenues or on specific taxes created to finance the scheme.

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