1. Farid Abolhassani Social Health Insurance 15

2. Learning Objectives After working through this chapter, you will be able to: Define the principles of social insurance and contrast it with private insurance Describe advantages and disadvantages of social insurance Discuss the impact of a payroll-based insurance system on wages, the labor market and employer behavior Describe the significance of pre-payment schemes for health insurance in low income countries

3. Key Terms Formal Labor Formal Labor Employment with taxable income. Payroll deduction Payroll deduction Contribution raised as part of wages. Redistribution Redistribution A government intervention to transfer income and wealth between groups of the population.

4. Social insurance is based on: Redistributional policies to equalize the financial burden of health care and; ensure access to care on the basis of need and not on ability to pay To ensure access to care on the basis of need and not on ability to pay.

5. Cross-subsidization in social health insurance 1. From the healthy to the ill: 1. From the healthy to the ill: contributions regardless of individual risk; 2. From the young to the old: 2. From the young to the old: smaller contributions from the elderly; 3. From the rich to the poor: 3. From the rich to the poor: contributions are a fixed percentage of earnings; 4. From singles to families: 4. From singles to families: equal contributions regardless of the number of dependants.

6. The characteristics of social insurance systems Compulsory membership; Payroll deduction of contributions; Run by public bodies, either single or multiple organizations; Redistributional policies; Clearly defined earmarked resources; Complex administration, relatively high costs; Can mobilize additional resources for the health sector Can mobilize additional resources for the health sector

7. Other characteristics of social insurance Coverage Coverage: social insurance may either cover part of the population (Latin America) or the whole population (Canada). Subsidies Subsidies: governments may subsidize social insurance funds to keep contributions affordable for the poor. Number of funds Number of funds: social insurance systems may consist of several funds or a single fund for the whole population. Contributions Contributions: usually compulsory, payroll deducted, progressive with income, but voluntary contributions and flat rates are also possible. Ownership of health care facilities Ownership of health care facilities by social insurance agencies: it is uncommon though agencies in Latin America act as providers as well as purchasers of health care. Benefit package Benefit package: may vary between basic and comprehensive health care.

8. Payroll Deduction Payroll contributions depend on formal labor This amount is normally split between employer and employee Where the income tax system is not reliable, it may be difficult to assess contribution levels for the self-employed. If incomes are consistently understated, it is possible to charge a higher rate for self-employed people, or to insist on a higher level of copayments.

9. Payroll Deduction (continued) Particularly difficult, but not impossible, is providing insurance for the agricultural sector In most countries, the payroll is already a major source of taxation. If the deduction rate is already high then it is not advisable to use this source for additional deductions From the point of view of employers, contributions increase labor costs that may increase unemployment negatively affect the competitiveness

10. Major Concerns Insurance arrangements tend to be more complex (and often more expensive to administer) than tax funding, and certainly require considerable administrative skills Education in general, as well as the educational level of the administrative staff, can be significant It is important to ensure that an accessible health infrastructure exists to provide health care and that there is some incentive to comply with the insurance When insurance is proposed in a situation with an existing system of state funded, free or heavily subsidized health services, people will question the advantages and resist the introduction of additional and highly visible insurance contributions unless they bring demonstrable additional benefits

11. Major Concerns (continued) Cost escalation is salient where insurers fail to control providers Moving part of the population from government to insurance finance may free government resources for priority services. But increased demand from the insured could worsen access for the uninsured. Partial coverage can exacerbate equity problems Partial coverage can exacerbate equity problems, as the insured tend to have higher incomes and better access to care. If government extends insurance, it needs to ensure services for the uninsured

12. Advantages of Social Health Insurance Raising more funds for health care ‘money follows the patient’ Improved productivity. In government-run services, a provider unit – such as a hospital – is financed through a budget allocation, whereas under social insurance the provider is paid for specified services rendered to specific patients. This means that ‘money follows the patient’. more explicit rights to demand high quality services Improved quality of care. Paying contributions creates a specific entitlement to services, which is considered to give patients more explicit rights to demand high quality services.