Inequalities growing
Recent decades have seen health disparities become widespread, including a perceived higher quality private sector next to lower quality public services. In much of the world, medical doctors, especially specialists, leave the public sector for much more lucrative positions in the private sector. This ‘brain drain’ causes longer waiting times and undermines public service quality. Those with means, including those who can afford private health insurance (PHI), resort to private facilities. When unchecked, this private-public healthcare quality gap, involving charges and quality, divides “haves” from “have-nots”.
Most health markets function poorly, in terms of both financing and providing healthcare. Market solutions typically worsen spiralling costs and limit healthcare access. To achieve universal health coverage and equitable access, health financing must instead be based on social solidarity involving cross-subsidization, with the healthy financing the ill, and the rich subsidizing the poor.
Private health insurance
PHI premiums are typically risk-rated. Individuals with pre-existing conditions and higher risks face very high premiums and may even be denied coverage. A voluntary PHI scheme for all will not be financially viable in the long-term either, as individuals with lower health risks are less likely to buy insurance from a scheme which mainly benefits those less healthy. In addition, ‘moral hazard’ and ‘supplier-induced demand’ in a ‘fee-for-service’ reimbursement system encourage unnecessary investigations, over-treatment, and costly monitoring to limit such abuses. Hence, voluntary PHI schemes charge unnecessarily high premiums.
PHI uses ‘healthcare management’ services to contain costs. Achieving universal health coverage would therefore require very costly public subsidization of such inefficient profit-seeking arrangements. This would be neither cost-effective nor equitable. In most developing countries, PHI services are typically linked to transnational insurance conglomerates, and invariably undermine those threatening their interests. Although the US spends most on health worldwide, its health outcomes are comparably modest and unequal.
Social health insurance
Unlike PHI, social health insurance (SHI) claims to cover entire populations. Although often proposed as the best option available, SHI limitations and problems are rarely acknowledged. SHI typically requires collecting an additional ‘health tax’ from payrolls. Through reducing take-home incomes, this insurance could be designed with various distributional consequences. For example, SHI payroll taxes could discourage employers from hiring employees with proper labour contracts. SHI has already reduced formal labour contracts by 8-10% and total employment by 5-6% in rich countries.
However, most working people in developing countries are not in formal employment, let alone unionized. It is very hard to collect premiums from the self-employed, or casual and informal workers not on regular payrolls. In addition, government revenue would still have to cover the indigent and poor as universal health coverage cannot be achieved otherwise. SHI has inherent tendencies to over-treatment and cost escalation, requiring costly administrative controls. Thus, even countries with successful SHI have been moving to greater revenue funding of healthcare as formal employment and unionization decline.
Revenue financing
Government revenue financing of healthcare is the best option. Although such financing is typically inadequately budgeted in most developing countries, promoting PHI or SHI would be worse. In most societies, such revenue financing can be improved by:
- raising government revenue through more progressive taxation
- increasing healthcare budgetary allocations
- improving health systems as appropriate
- eliminating corruption
- promoting competitive bidding as appropriate
Revenue financing avoids many unnecessary administrative costs incurred by PHI and SHI. Additional costs of insurance systems raise health spending by 3-4%, but despite being more costly than revenue financing, they do not produce better health outcomes. Revenue financing has no need for staff to register, track and pay SHI contributors and beneficiaries, nor costly oversight mechanisms to deter selfish opportunistic behaviour. Switching from revenue-financing to SHI is thus a step backwards for both equity and cost-effectiveness.
Progressive revenue-financed public health systems are thus more equitable, cost-effective, and beneficial than SHI. Also, public health programmes requiring popular participation have worse outcomes with SHI compared to revenue financing. A commitment to ‘health for all’ or ‘universal healthcare’ is best achieved by improving or developing revenue funding. This would ensure more resources to enhance preventive and primary healthcare, with better service conditions for health personnel.
