Financing Social Health Insurance

Challenges and Opportunities

Axel Weber

Disclaimer: The views expressed in this paper/presentation are the views of the author and
do not necessarily reflect the views or policies of the Asian Development Bank (ADB), or its
Board of Governors, or the governments they represent. ADB does not guarantee the
accuracy of the data included in this paper and accepts no responsibility for any
consequence of their use. Terminology used may not necessarily be consistent with ADB
official terms.
Structure
y Introduction
y The income side
y The expenditure side – Benefits and Support Value
y The question of equity and accessibility
y The question of matching income and expenditure, cost
control
y Conclusion
Introduction
y Many countries recently reforms of their health care financing
systems.
y Mostly change from state financed to contribution financed
schemes.
y Since the Bamako Initiative (UNICEF, WHO 1987), health
insurance has become more and more prominent as a financing
solution for health care systems in developing countries.
y Social Health Insurance (SHI) is defined as an instrument to share
risks of health care costs, especially of catastrophic nature,
combined with a financing through contributions according to
affordability.
y The objective is to achieve universal coverage in order to get
enough redistribution, to avoid risk selection and to achieve a
basic protection for all.
The Income Side - Fiscal Space
y In many developing countries, available health funding is arguably too
low.
y The ability to raise additional funds is termed “fiscal space”.
y General tax revenue may not be sufficient, because public debt is high,
because the public allocation is not effective enough or because the
political will to use public funds for health care is not there.
y The advantage of using SHI as financing instrument is that the funds that
are collected are earmarked.
y Also, SHI is a way to make all people pay according to their abilities.
y The experience is that all countries can afford basic health protection for
all.
y ADB Social Protection Index
The Income Side - Contributions
y Main source of funding of SHI are contributions.
y universal flat rate;
y different for specific groups (e.g. lower premiums for low-
income groups, with or without a means test, or different
contributions according to the available infrastructure in a
geographic region);
y wage-related or income-related (scaled, proportionate,
progressive or regressive, with or without a minimum
premium or an upper limit).
y Commercial Insurance: risk related and funded
y SHI: pay as you go
The Income Side – Co-Payments
y flat rate (per day, per item, per prescription);
y percentage co-payment (a certain percentage of the price or fee);
y excess payment, meaning that the insurance pays up to a limit
only, with the patient paying any amount charged by the provider
in excess of the maximum amount (price or fee) reimbursed by
the health insurance;
y any of the above options subject to a maximum amount per year
(stop-loss), beyond which the insurance covers the costs.
y In many developing countries, affordable co-payments mean a
remarkable improvement of the financing practice from the point
of view of the patient.
y In many countries health insurance would mean a major progress
if only it leads to transparent pricing, not speaking of risk sharing.
The Income Side – Gouvernment
Subsidies
y subsidies to cover deficits;
y subsidies to cover contributions (partly or entirely) on behalf of
certain groups;
y general subsidies covering a certain percentage or a fixed amount
of the overall costs;
y subsidies to cover the cost of certain services provided by SHI;
y subsidies to cover initial investment or start-up costs of SHI.
y State subsidies have both advantages and disadvantages.
y Concern about equity may arise if health insurance does not cover
the whole population but is financed to a significant extent by
taxes, which in turn are paid by the whole population.
The Income Side – Donor Funding
y In developing countries donor funding may play an important
role, especially during the period of building up SHI. Donors may
fund technical assistance, training, equipment, and a start-up fund
y There are two basic ways of donor funding: grants and loans.
y Grants basically are a subsidy, whereas loans have to be paid back.
y In general, it can be said that loans are useful as far as they are use
to finance investment like capacity building, infrastructure, setting
up an administration. Loans are less useful if used for financing
benefits as this is not sustainable.
y The of donor funds to subsidize SHI is that they are potentially
unsustainable.
 Equity and Affordability
y Out of pocket expenditure major source of risk
y Universal coverage as strategy of risk protection
y One dimension of universal coverage is population coverage and
especially informal sector
y compulsory membership (administratively not easy);
y voluntary membership, combined with awareness campaigns,
(problems of adverse risk selection);
y flat-rate contributions and free membership for those who are not
able to pay (if there are state or other subsidies, and combined with a
means test);
y cooperation with communities and community-based organizations;
y bundling SHI with other products such as membership in
organizations or micro-finance;
y information-sharing across government agencies in order to improve
information about identity and situation of possible target groups.
 Benefits and Support Value
y Second dimension of universal coverage is the extent of health service coverage
(e.g. what is covered).
y A key question in this context is the support value of a social health protection
scheme.
y Support value is defined as the percentage of the health insurance benefit in relation
to the total costs of a health incident with which people are faced. There are several
reasons why the support value can be less than 100%, meaning that there is a share
of out of pocket financing in spite of the existence of SHI:
y One reason might be that SHI benefit is limited to a maximum amount per episode.
y Widely used in countries where there is no effective contracting and provider
payment mechanisms in place.
y Another reason for support values less than 100% may be co-payments. In this case
it is politically desired and accepted that the support value is lower than 100%.
y Exclusion of certain benefits and procedures
Benefits and Support Value
y Most important risk are catastrophic cases
y Risk from the point of view of the insurance is defined by
probability times the costs per case, the variation of the expected
risks and especially it’s relation to the total turnover.
y From the point of view of the individual household the first
consideration is similar to that one of insurance companies for
individual cases. However, the risk increases with the number of
family members, because often it does not come along necessarily
with a corresponding increase of revenue, and the confidence
interval or respectively the standard error, will be much larger
because the sample is probably smaller.
Benefit and Support Value
y Special Situation of Households:
y In case the household has to finance the costs through a credit, the interests have to
be added to the costs. Actually, this is one of the reasons, why in many poor
countries people loose their property step by step.
y The household will have little choice in the case of health care.
y So apart from the effect of risk sharing, which makes the main difference between
individual households and insurance, the risk itself is very different. The benefits of
an insurance really come to effect in the case of catastrophe. This is why the
support value is especially important in the case of catastrophic cases.
y The reality, especially in developing countries and even in those with social health
protection schemes is that support values are low.
y Philhealth has made a study in the Philippines analyzing the support value of the
SHI. It came to the result that the average support value lies around 50%. In many
other developing countries the situation is similar. The reasons for this situation
are:
y Lack of cost containment, effective provider payment mechanisms and contracting.
y Under the table payments.
Cost Containment
y Reasons for cost developments:
y Lack of effective provider payment mechanisms,
y improvements in medical technology that are both more rapid and more
expensive (which to some extent is related to the improvement in services
described above);
y a relatively stable demand for health services even if the price rises (low price
elasticity);
y labour-intensive health care with limited possibilities to increase productivity;
y to some extent, providers can define the demand for their services (and thus
their incomes);
y inflation created simply by the existence of health insurance. In some countries
providers ask for higher prices as soon as they know that patients are insured;
y New products also benefit from protection through patents so that competition
does not reduce prices. In times when innovation is rapid, this can lead to cost
increases. New products and services also often create additional demand.
Cost Containment
y Measures of cost containment:
y Contracting and provider payment mechanism – purchasing function;
y careful design of the benefit package;
y co-payments and user charges;
y incentives to prevent the use of health care services (e.g. through bonus
schemes);
y incentives to use cheaper products and services (e.g. by reducing co-
payments for cheaper solutions like generic drugs);
y restricted access to providers, sometimes known as gatekeeping;
y refund of part of the contribution at the end of a year if the patient has
claimed no benefits;
y restricted choice of providers or products;
y provision of information and education for users of health services.
Conclusion
y Financing social health insurance is a complex and
challenging tasks.
y Main challenges are financial sustainability, universal
coverage and cost containment.
y Social health insurance has proven its ability to share risks
people are facing with health care costs. But experience in
low income countries shows that there is still some way to go
to achieve universal coverage and acceptable support values.
y A special task is to balance income interests of the health
sector and risk exposure and costs that patients have to bear.