Financing Social Health Insurance in Developing Countries: Impacts on Fiscal & Labor Market Outcomes by Adam Wagstaff (World Bank) IDB/PAHO Regional Workshop on Fiscal Space and the Financing of Universal Health Care in the Americas Washington DC, November 2007

Introduction 90% of OECD countries finance majority of health expenditures publicly Half use general revenues. Other half have SHI systems, dedicated earnings-related contributions for formal-sector workers Among the non-OECD countries, 56% finance a majority of health spending publicly, and only 20% have SHI Many countries are embracing SHI, often with the blessingif not the encouragementof donors Yet this is happening at a time when Germany et al. trying to reduce their reliance on payroll financing of health care LAC advised to follow suit by Baeza & Packard in their Beyond Survival

Evidence is clear on some issues Revenues: Revenues fall short of theoretical levels due to evasion and underreporting of earnings MOF sometimes reduces govt. spending on health in line with theoretical SHI revenues SHI financing less equitable than taxes in general Contribution ceilings limit progressivity Horizontal inequity: contrib. schedules vary by scheme Coverage: Gaps in coverage until countries reach high per capita income

Financing less progressive under SHI

Gaps in coverage under SHI

Evidence is less clear on other issuesi Do SHI systems spend more on health care? On the one hand: People more willing to pay SHI contributions than taxes? Guaranteed revenue stream? On the other hand: Actual and theoretical revenues often diverge SHI revenues grow more slowly than tax revenues due to ceilings

Evidence is less clear on other issuesii What are the impacts of SHI on health outcomes? On the plus side, SHI may: Bring in additional resources to the health sector Stimulate efficiency in the delivery system, through separation of purchasing and provision, and provider payment reform On the negative side, SHI may result in: Gaps in effective coverage Focus on inpatient care, neglect of prevention, early detection, etc. Higher wages in health sector, not necessarily higher quality Purchaser-provider splits and payment reform happen also in non-SHI countries, not always in SHI ones!

Evidence is less clear on other issuesiii What s the impact of SHI on employment? Argued that payroll financing reduces employment, by raising cost of labor. But … Labor supply curve (for formal sector) shifts rightwards because workers value SHI benefits so, smaller disemployment effect and a larger reduction in the post-tax wage than in standard case Relevant question is whether a health system financed through payroll taxes leads to lower employment than one financed through general revenues Does SHI encourage informalization of the economy? Depends on incentives people face ECA different from LAC?

Europe & Central Asias SHI experimentlearning opportunities Staggered and incomplete adoption of SHI in ECA countries during 1990s provides an opportunity to assess some of the aggregate effects of SHI adoption Study design similar to multiple U.S. studies in many fields that exploit staggered and incomplete policy roll-out across the 50 states Country-level analysis permits aggregate effects to be estimated. So, capture effects on all the relevant actors in the health system, including new ones (e.g. new SHI agency, new entrants into provider market, etc.)

SHI adoption in ECA: A quick historyi , most ECA countries financed health care through general revenues and delivered it though centrally-planned Semashko model In early 1990s, as they shifted from Communism, many countries looked to SHI to help solve several emerging problems: Dramatic decline of govt. revenues as share of GDP and falling GDP SHI thought likely to lead to better health delivery system. SHI agency would sit at arms length from MOH and MOF, would develop purchasing capacity, promote competition within public sector and between it and private sector

Who adopted SHI when? And what share of spending was financed through SHI? Source: HiTs and World Health Reports, various years

SHI adoption in ECA: A quick historyii SHI makes up a bigger share of revenues in E European countries, where contribution rates are high Most countries do have a SHI agency, but so too do Poland and Latvia which use income taxes or general revenues Often MOH still transfers some funds to providers, and SHI agency contracts have taken time to emerge, are often not competitive, and often do not involve private sector SHI has often but not always led to switch from budgets to FFS or patient-based payments (e.g. DRGs). Some non-SHI countries also switched

Methods Generalization of differences-in- differences (DID) estimator: includes z it and g i t Also estimate eqn below using IV where have evidence that above eqn doesnt address endogeneity of SHI adequately

Health sector outcome variables VariablesSources Health spending & resources Total health spending per capita; salaries as % spending; physician numbers WDI; WHO-Health- for-All Hospital throughput & capacity LOS; bed occupancy rate; # beds; inpatient admissions WHO-Health-for-All Hospital dischargesBy diagnosisWHO-Health-for-All ImmunizationBy typeWHO-Health-for-All Mortality Life expectancy; U5MR & IMR; MMR; standardized death rates WHO-Health-for-All; UNICEF TransMONEE Avoidable deaths (quality proxy) Deaths from appendicitis, hernia, surgery infections WHO-Health-for-All Disease incidenceBy diagnosisWHO-Health-for-All Health outcomes dataset is 77% non-missing. (69 outcome variables. 28 countries. 16 years. Maximum # observations = Actual # observations on health outcomes = )

Labor market outcome variables VariablesSources Wage rate Total annual wages and salaries in constant PPP averages for the employed population aged Own calculations based on data from WDI and UNICEF TransMONEE Unemployment Unemployment rate; registered unemployed; long-term unemployed ILO Employment % working-age population and population aged employed ILO; UNICEF TransMONEE Informal economy Based on discrepancy between growth of GDP and electricity demand Own calculations, based on Johnston et al. method Informal employment Self-employment; agricultural employment ILO Labor force participation Whole population; women onlyILO Labor market outcomes dataset is only 55% non-missing. (8 outcome variables. 28 countries. 16 years. Maximum # observations = Actual # observations on health outcomes = 1987.)

z variables VariablesSources GDP GDP per capita, PPP (constant 2000 international US$) WDI Public share of health spending Health expenditure, public (% of total health expenditure) WDI Elderly population*Population ages 65 and above (% of total)WDI Urban population*Urban population (% of total)WDI Health spending $ Total health spending per capitaWDI Hospital payment method *** EXCLUDED FROM BASIC MODEL *** FFS, patient-based method (e.g. DRG). Budget is omitted category HiTs * Excluded from labor models. $ Excluded from health models.

Basic model: SHI impacts on spending and hospitals

Basic model: SHI impacts on life expectancy and mortality

Basic model: SHI impacts on cause- specific mortality

Basic model: SHI impacts on disease incidence & immunization

Effects on SHI impacts of including provider-payment reforms variables

SHI impacts on labor market outcomes

Conclusions Already known Coverage Gaps often occur under SHIoften among poor, near-poor Less generous coverage translates into lower utilization but not necessarily inferior financial protection Raising revenues: SHI vs. taxes SHI revenues may be lower than expected due to evasion etc., are they more/less predictable? SHI less progressive than tax finance New from ECA study Health care delivery SHI neither necessary nor sufficient for separation of purchasing & provision SHI systems more expensive but do not apparently achieve better health outcomes despite higher spending SHI and the labor market SHI raises (gross) wages, decreases employment Impacts on size of formal sector unclear