Regulation and the Role of Government in SHI and VHI
Dr. Pablo Gottret
Senior Economist
Health, Nutrition and Population
April 2004
The Millennium Development Goals (MDGs)
In the 1990s
The Global Community Made a Pledge to Help
Developing Countries Achieve the MDGs
Extreme Poverty: •Halve, between 1990 and 2015, the proportion of people whose income is less than $1 a day.
•Halve, between 1990 and 2015, the proportion of people who suffer from hunger.
Safe Water & Sanitation:
•Halve by 2015 the proportion of people without sustainable access to safe drinking water.
•By 2020, achieve significant improvement in the proportion of people with access to sanitation.
Child & Maternal Health: •Reduce by two thirds, between 1990 and 2015, the under-five mortality rate.
•Reduce by three quarters, between 1990 and 2015, the maternal mortality ratio.
Primary & Girls' Education: •By 2015, boys and girls everywhere complete a full course of primary schooling.
•Eliminate gender disparity in primary and secondary education, preferably by 2005, and in all levels of education no later than 2015.
Communicable Diseases By 2015, halt and begin to reverse the spread of:
•HIV/AIDS•Malaria & •Other major diseases.
Millennium Development Goals(MDG)
Reduce child mortality
Under Five Mortality (per 1,000 live births)
7886
29
0
20
40
60
80
100
1990 19992015
Reduce Child Mortality Improve Maternal Health
Births attended by skilled health personnel(% total)
51
90
47
0
20
40
60
80
100
1988 2015
Millennium Development Goals
Global Aggregates
Children of Poor FamiliesAre Worse Off
Under-five mortality
0
50
100
150
200
250
Bang
lade
sh
Beni
n
Boliv
ia
Braz
il
Burk
ina
Faso
Poorest20%
Richest20%
Stunting prevalence (%)
0
10
20
30
40
50
60
Bang
lade
sh
Beni
n
Boliv
ia
Braz
il
Burk
ina
Faso
Poorest20%
Richest20%
Financing Policies withGood Governance andLocal Capacity
Allow Countries to Leverage Outcomes
Outcomes
Financing
Governance
Capacity
Indi
vidu
als
Government
Providers
Loca
l Gov
.Ben
efits
When Good Policies andCapacity are MissingThings Break Down:
• Policy• Information/M&E• Capacity• Household Behaviors• Institutional Incentives• Financing
Money Alone
Weak Policies & Corruption
Lack of Community Involvement
Problems with Supply
Lack of Demand Outcomes
Outcomes
• Global GDP– US$31 Trillion (3 - 4 percent Growth Rate)
• Global Health Spending– US$2.6 Trillion (8 percent of Global GDP)
• Spending In Developing Countries– US$280 Billion (11 percent of total spending)
Let us Look at a Few Numbers
Only 11 Percent of Global Spending for90 Percent of the World’s Population
Global Health Expenditure 2000 = US$2.6 Trillion
Africa 0.4%
Middle East and N Africa 1.5%
Europe 2.4%
Americas 3.2
Asia 3.5%
Developed Countries 88.9%
Revenue Pooling Resource AllocationCollection or Purchasing (RAP)
What are Good Health Financing Policies?P
riva
teP
ub
lic
Taxes
Public Charges
Mandates
Grants
Loans
PrivateInsurance
Communities
Out-of-Pocket
PublicProviders
PrivateProviders
Service Provision
GovernmentAgency
Social Insurance orSickness Funds
Private InsuranceOrganizations
Employers
IndividualsAnd Households
• Revenue Collection – Difficulties reaching rural & informal sectors– Weak Taxation Capacity
• Pooling– Incomplete and fragmented revenue pool– Incomplete and fragmented sharing of risks
• Resource Allocation and Purchasing– Public subsidies often have pro-rich bias– The poor often bypass formal sector providers
Understanding Rich Poor Differences in Health Care Financing
Low-Income Countries HaveWeak Capacity to Raise Public Revenues
To
tal G
ove
rnm
ent
Rev
enu
es a
s %
GD
P The tax structure in many
low-income countries is often regressive.
0
20
40
60
80
100
Per capita GDP (Log scale)
10,000 100,0001,000100
Governments in many countries often raise less than 20% of GDP in public revenues; and
What do We Mean by Pooling?
Age
Res
ourc
e en
dow
men
t
Health risk
Res
ourc
e en
dow
men
t
Cross-subsidy from low-risk to high-risk
Low risk
High risk
$
$
Income
Res
ourc
e en
dow
men
t
Cross-subsidy fromrich to poor
PoorRich
$
$
Cross subsidy from productive to non-productive
part of the life cycle
Productive
Non-produc
tive
$
$
Low Income Countries HaveLess Pooling of Revenues
Share of world’s 1.3 billion living onless than US$1 day indicated by
size of blue bubbles
Low-Income Countries Have Pro-Rich Bias of Public Subsidies
0
5
10
15
20
25
30
Poorest Quintile Richest Quintile
AfricaEast EuropeAsiaS
ub
sid
ies
(%)
Go
vern
men
t h
ealt
h e
xpen
dit
ure
)
What is a Typical Financing Scheme in a Developing Country
• Segmented Financing System– Limited public health and concentration of expenditures in supply side
subsidies to curative care (large public hospitals)
– Social Insurance with low coverage usually concentrated in middle and upper class urban population (salaried workers)
– Communities have responded with community risk pooling mechanisms.
– Limited supplementary insurance for those who can afford it • There is no package to supplement
• Unclear rules of the game
• Little development of Capital markets and prohibition to invest abroad
• Mandatory requirements to be a fully complying insurance company in the country.
– Large out of pocket payments for curative care, usually paid by lower income families.
Czech Republic
Uruguay
Oman
Hungary Argentina
Saudi Arabia
St. Kitts And Nevis
Slovak Republic
Estonia Poland
Mauritius
South Africa
Chile
Croatia
Malaysia
Mexico
Costa Rica Botswana
Latvia Brazil
Macedonia, Fyr
Thailand
Tunisia Panama
Namibia Turkey
Tonga Bulgaria
Gabon
Colombia
Dominica
Dominican Republic
Algeria
Samoa
Fi
Belarus
Peru
El Salvador
Paraguay
Lebanon
Guatemala
J ordan
Philippines China
J amaica
Egypt, Arab Rep.
Turkmenistan
Morocco Ecuador Vanuatu
Indonesia
Zimbabwe
Honduras
Papua New Guinea
Bolivia
Armenia
Lesotho
Vietnam
Djibouti Guinea
Georgia
Ghana
Pakistan
Solomon Islands
Sudan
Gambia, The
Haiti Cameroon
Mongolia
Cote D'Ivoire
Kyrgyz Republic
Togo
Moldova
Uganda
Rwanda
Burkina Faso
Chad
Nigeria
Eritrea
Mali
Zambia
Malawi Burundi
0
1
2
3
4
5
6
7
8
0 2,000
4,000 6,000 8,000 10,000 12,000 14,000
Per capita income PPP PPPPPP PPP
Dom
esti
call
y F
inan
ced
Gov
ernm
ent
Hea
lth
Spe
ndin
g as
% o
f G
DP
Domestic Financed Gov. Expenditures (Central Gv. + SHI) varies across countries for any level of GDP
Private Expenditure in Health is More Important, Private Expenditure in Health is More Important, specially in Low Income Settingsspecially in Low Income Settings
Source: WDI, 2002
Notes: Regional aggregates exclude high-income countries (GNI per capita > $9,206); MENA health expenditures include Saudi Arabia and Oman, which are both considered upper middle-income countries according to World Bank specifications.
Region/income groupPopulation,
millions (2002)
Per capita GDP (2002
$US)
Health expenditures
per capita, (2000)
Public health expenditures
(% of total health exp.,
2000)Aid as a % of GNI (2001)
East Asia & Pacific 1,838 980 44 38 0.5
Europe & Central Asia 476 2,384 108 73 1
Latin America & Caribbean 527 3,176 262 47 0.3
Middle East & North Africa 306 2,265 171 62 0.7
South Asia 1,401 467 21 20 1
Sub-Saharan Africa 688 463 29 43 4.6
World 6,201 5,201 482 58 0.2
High income 965 26,942 2735 59 N/A
Middle income 2,742 1,870 115 51 0.4
Low income 2,495 453 21 25 2.4
Some Illustrative Numbers (in %, data for year 2001)
India Bolivia Rwanda Thailand
THE / GDP 5.1 5.3 5.5 3.7Public H. Exp. / THE 17.9 66.3 55.5 57.1Social H. Exp THE N.A. 35.0 0.4 14.9Coverage / Population 1.0 21.0 1.4 N.A.Private H. Exp / THE 82.1 33.7 44.5 42.9OOP / Private H. Exp 99.0 82.0 N.A. 85.0
THE = Total Health ExpenditureOOP = Out of Pocket ExpendituresN.A. = Not AvailableSource: WHO
MODELS – FLOW OF FUNDS CLASSIC FRAGMENTED MODEL of SHI
Gral. Gov. Indiv./firms1
MOH
Indiv./Firms2
SIF 1 SIF 2
P3 Pmoh P2 Psif1 Psif2
EXAMPLESMexico, Bolivia, Peru,Ecuador
Typical Problems:Inefficiency, duplication of infrastructure, duplication ofCoverage, low coverage breadth MOH, low coverage depth,Equity, supply side subsidies, subsidies to middle/upper class
MODELS – FLOW OF FUNDS SINGLE PAYER
Gral. Gov Indiv./ Firms
Social Insurance Fund
P 1 P 2 P 3 P4
EXAMPLES:Costa Rica, Canada, Taiwan, Korea,Estonia, Hungary
TYPICAL PROBLEMS:Cost containment, deficits, transparency/accountability, possible lack of competition
MODELS – FLOW OF FUNDS Managed Care -- Argentina
Indiv. /Firms
Collector
OS 1 OS 2 OS 3
P3 P5P1 P2 P3 P4 P2 P3
SolidarityFund
High ComplexityFund
PROBLEMS:Risk selection, double coverage, transparency/accountability, supervision/control, high administrative costs
MODELS – FLOW OF FUNDS Managed Care -- Colombia
Gral. Gov. Indiv./Firms
Social Ins. Fund
EPS 1 EPS 2 ARS 1 ARS 2
P5 P3P1 P4 P2 P1 P3 P2 P2
PROBLEMS:Administrative costs, targeting, equity, risk selection.
MODELS – FLOW OF FUNDS Managed Care -- Chile
Indiv./ FirmsHigher Income
FONASA ISAPRE 1
P2 P5 P4 P2 P3 P4
ISAPRE 2 ISAPRE 3
P3 P1 P5P1
Indiv./ FirmsLower Income
PROBLEMS:Equity, risk selection, perverse incentives from opting out, high administrative costs, subsidies to upper income
RISK TRANSFERS
Regulation will Vary Depending on Assumed Risk Among Others
• Entitlement, Enrollment and portability
• Degree of Mobility of insured population
• Minimum entry requirements to industry
• Solvency margins and prudential regulation (reserves, investment of reserves, financial disclosure actuarial studies, corporate governance, others)
• Consumer protection and disclosure (complaints and periodic and public information requirements)
• Exit mechanisms (intervention, liquidation, others)
• Regulation related to market failures (adverse selection, risk selection and moral hazard)
Will More Money Alone Help Achieve the MDG?
• There are estimates that to achieve MDG there is a need of additional funding for health expenditures in the range of US$ 30 to 80 billion.
• It is unlikely that this money will come from donor financing alone and if it did it would be non-sustainable.
• Donor financing must leverage structural change.
What is it Needed in Financing to Achieve MDG?
• A sustainable Financing Strategy per Country• Understanding Health as a System• Clear and complementary roles for Public Sector,
Social Insurance, Community Risk Pooling Mechanisms, Private Insurance and Out of Pocket Payments.
• Clear and sustaining rules of the game all across.
PublicSector
PrivateSector
NGOsand
InternationalPartners
Individualsand
Households
No Single Actor Can do it Alone
Insurers
BetterFinancial
ProtectionIn Health