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Scaling Up Affordable Health Insurance

Scaling Up Affordable Health Insurance
Staying the Course
Editors
Alexander S. Preker, Marianne E. Lindner,
Dov Chernichovsky, and Onno P. Schellekens
© 2013 International Bank for Reconstruction and Development/The World Bank
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Library of Congress Cataloging-in-Publication Data
Scaling up affordable health insurance : staying the course / editors, Alexander S. Preker, Marianne E.
Lindner, Dov Chernichovsky, and Onno P. Schellekens.
p. ; cm.
Includes bibliographical references and index.
ISBN 978-0-8213-8250-9 (pbk. : alk. paper) — ISBN 978-0-8213-8579-1 (electronic)
I. Preker, Alexander S., 1951– editor of compilation. II. Lindner, Marianne E., editor of compilation.
III. Chernichovsky, Dov, editor of compilation. IV. Schellekens, Onno P., 1964– editor of compilation.
V. World Bank, issuing body.
[DNLM: 1. Insurance, Health. 2. Developing Countries. 3. Health Services Accessibility—economics.
W 100]
RA412.3
368.38'2—dc23
2013009642
v

Contents
Foreword xix
Preface xxi
Acknowledgments xlix
Abbreviations and Acronyms li
1. Introduction: Public Options, Private Choices 1
Alexander S. Preker, Marianne E. Lindner, Dov Chernichovsky, and
Onno P. Schellekens
Introduction 1
Key Issues 4
References 9
PART 1 MAJOR POLICY CHALLENGES: PRECONDITIONS FOR
SCALING UP 11
2. Health Protection: More Than Financial Protection 13
Xenia Scheil-Adlung
Introduction 13
Social Health Insurance: Concepts, Defi nitions, and
Observations 14
Current Trends and Developments in Social Health
Insurance 22
Experiences in Scaling Up Social Health Insurance 26
Achieving Universal Coverage by Scaling Up Social
Health Insurance 36
Conclusion 44
Notes 45
References 46
3. Making Health Insurance Affordable: Role of
Risk Equalization 49
Wynand P.M.M. van de Ven
Introduction 49

Why Are Out-of-Pocket Health Expenses So Common? 50
Subsidies for Health Insurance 54
Mandatory Community Rating: Does One Premium Fit All? 61
vi Contents
Economic Motives for Mandatory Health Insurance 63
Conclusions and Discussion 65
References 67
4. Reaching the Poor: Transfers from Rich to Poor and
from Healthy to Sick 71
Sherry Glied and Mark Stabile
What Is Social Health Insurance? 71
Design Considerations 75
Financing Mechanisms 84
Notes 90
References 90
5. Binding Constraints on Public Funding: Prospects
for Creating “Fiscal Space” 91
Peter S. Heller
What Are the Sources of “Fiscal Space”? 91
Issues That Arise in the Creation of “Fiscal Space” 95
Concluding Remarks 98
Notes 99
References 99
6. Universal Coverage: A Global Consensus 101
Guy Carrin, Inke Mathauer, Ke Xu, and David B. Evans
Introduction 101
Shifting to Prepayment 102
Policy Norms in Health Financing 103
Key Questions 103
Factors to Consider 106

Toward a Comprehensive Framework 107
Conclusion 110
Note 110
References 110
PART 2 FROM THEORY TO PRACTICE: EVIDENCE FROM THE GROUND 113
7. The French Connection in Francophone Africa 115
Yohana Dukhan, Alexander S. Preker, and François Diop
Introduction 115
Current Status of Health Financing and Health Insurance 116
Key Factors in the Development of Health Insurance 131
Prospects for the Development of Health Insurance 137
Conclusions 139
Annex 7A Statistical Annex 141
Notes 142
References 143
Contents vii
8. “Big-Bang” Reforms in Anglophone Africa 147
Caroline Ly, Yohana Dukhan, Frank G. Feeley,
Alexander S. Preker, and Chris Atim
Introduction 147
Health Coverage and Insurance Arrangements 151
Factors Underlying Resistance to Reform and Implementation 156
Targeted Areas for Scaling Up Health Insurance Development 171
Annex 8A Health Insurance Arrangements in Anglophone Africa,
by Country 177
Notes 185
References 185
9. Moving from Intent to Action in the Middle East
and North Africa 191
Bjorn O. Ekman and Heba A. Elgazzar

Introduction 191
Health Financing in MENA: Trends and Patterns 192
Health Insurance in MENA 199
Conclusions and Recommendations 208
Annex 9A MENA: National Health Expenditure, 1995–2008 217
Annex 9B MENA: Health Financing and Insurance,
Selected Countries 221
Notes 227
References 228
10. One-Step, Two-Step Tango in Latin America
and the Caribbean 231
Ricardo Bitrán
Introduction 231
Overview of the LAC Region 232
Policy Challenges That Arise When Extending Coverage 234
Strategies for Extending Health System Coverage:
Social Insurance and Other Approaches 241
Summary and Conclusions 264
Notes 269
References 270
11. Orient Express in South, East, and Pacifi c Asia 273
William C. Hsiao, Alexis Medina, Caroline Ly,
and Yohana Dukhan
Introduction 273
Overview of Socioeconomic, Demographic, and
Health Conditions 275
Role of Private Insurance in Scaling Up 282
Barriers to Scaling Up 283
Factors Enabling Developed Asian Countries to Scale Up 290
viii Contents

Scaling Up in Five Low- and Lower-Middle-Income
Asian Countries 293
Lessons and Conclusions 309
Notes 310
References 310
12. Bismarck’s Unfi nished Business in Western Europe 313
Hans Maarse, Alexander S. Preker, Marianne E. Lindner,
and Onno P. Schellekens
The “Logic” of Health Insurance 313
The Social Origins of Health Insurance 315
The Extension of State Involvement in Health Insurance 316
The Doctors’ Struggle 320
Broadening Coverage 322
Deepening Coverage 324
The Structure of the Health Insurance Market 325
Economy and Governance 326
Conclusions and Policy Lessons 328
Annex 12A Socioeconomic Data on Health Insurance,
Selected West European Countries 331
Annex 12B Overview of Health Financing and Social Health
Insurance, Selected West European Countries 334
Annex 12C The Conceptualization of Good Governance 336
Notes 337
References 337
13. From Cradle to Grave in the United Kingdom,
Canada, Australia, and Elsewhere 341
Alexander S. Preker and Mark C. Bassett
Introduction 341
Past Achievements 342
Major Outstanding Issues 344

Two Different Reform Processes to Universal Access 345
Legal Entitlement and Dimensions of Access 348
Nature of Participation 350
Financing Mechanisms 350
Relevance of OECD Experience to the Developing World 351
Revisiting Universal Entitlement 355
Note 355
References 356
14. Great Post-Communist Experiment in Eastern Europe
and Central Asia 357
Adam Wagstaff and Rodrigo Moreno-Serra
Introduction 357
Europe and Central Asia’s SHI Reforms and Hypothesized Effects 359
Methods 364
Contents ix
Data 367
Results 374
Discussion and Conclusions 384
Notes 387
References 390
PART 3 IMPLEMENTATION CHALLENGES: STAYING THE COURSE 393
15. Political Economy of Reform 395
Ashley M. Fox and Michael R. Reich
Introduction: Why Political Economy? 395
Agenda Setting: Getting Health Insurance onto the
National Agenda 397
Technical Design: What Affects the Contents of the
Proposed Reforms? 403
Adoption: Political Bargaining and the Legislative Process 411
Implementation: Operationalizing the Reform 417

Conclusions 424
Notes 428
References 428
16. Institutions Matter 435
Alexander S. Preker, April Harding, Edit V. Velenyi,
Melitta Jakab, Caroline Ly, and Yohana Dukhan
Introduction 435
Political Economy of Health Financing Reforms 436
Policy Options for Reform 444
Notes 461
References 462
17. Accountability and Choice 467
Dov Chernichovsky, Michal Chernichovsky, Jürgen Hohmann,
and Bernd Schramm
Social Health Insurance: The Concept 469
Social Health Insurance Models: A Typology 471
Shaping the Institutional and Governance Infrastructure for SHI 476
SHI Transitional Challenges: Transforming Groups and
Stakeholders 483
Meeting Transitional Challenges 488
Conclusion: The Roles of the State Revisited 492
Notes 493
References 494
18. Regulatory and Supervisory Challenges 497
Hernán L. Fuenzalida-Puelma, Pablo Gottret, Somil Nagpal,
and Nicole Tapay
Regulation, Supervision, and the Public-Private Mix 497
Regulatory and Supervisory Activity 499
x Contents
Supervision and Regulation: Minimum Requirements 501

Minimum Regulatory Requirements 502
Health Care Providers and Suppliers 506
Public-Private Partnerships 508
Conclusions 510
Annex 18A Adapting Accepted Insurance Principles to
Private Voluntary Health Insurance 511
Notes 517
References 518
19. Implementing Change 521
Hong Wang, Kimberly Switlick-Prose, Christine Ortiz,
Catherine Connor, Beatriz Zurita, Chris Atim, and François Diop
Introduction 521
Design Elements for a Health Insurance Scheme 523
Summary 535
Notes 536
References 537
20. New Development Paradigm 539
Onno P. Schellekens, Jacques van der Gaag, Marianne E. Lindner,
and Judith de Groot
Introduction 539
The Old Paradigm 542
How Did Universal Health Systems Grow? 545
Why Does the Process Work Differently in Development
Settings? 548
Clients 549
An Alternative Model for Health Systems: Beyond the
Three Laws of Health Economics 551
Conclusions 554
Notes 555
References 555

Appendixes
A. Theory of Social Health Insurance 561
Peter Zweifel
1. Introduction and Overview 561
2. The Demand for Social Health Insurance 561
3. The Supply of Health Insurance 569
4. The Design of an Optimal Health Insurance Contract 603
5. The Limits of Social Health Insurance 605
6. Summary and Conclusions 610
Notes 611
Annex A Formal Model of Health Insurer Behavior in Terms of
Innovation and Risk-Selection Effort 613
Contents xi
Annex B Types and Effi ciency Effects of Regulation 617
References 618
B. Empirical Evidence on Trends in Health Insurance 623
Yohana Dukhan
Conceptual Framework 623
Empirical Analysis of Health Insurance Development at the
International Level 624
Results 636
Annex A Additional Data 640
Notes 644
References 646
C. Compendium of Health Insurance Terms 649
Alexander S. Preker and Mark V. Pauly
Note 671
About the Coeditors and Contributors 673
Coeditors 673
Other Contributing Authors 675

Index 691
BOXES
1.1 Underlying Issues and Motives for Reform 7
2.1 Key Policies on Health Care Financing 39
2.2 Policies on Building Rational Linkages between Different
Health-Financing Mechanisms 40
2.3 Key Policies on Adequate Benefi ts Packages and Protection
from Catastrophic Spending 41
3.1 Why Out-of-Pocket Payments Are So High and Health
Insurance Coverage So Thin in Low-Income Countries 55
3.2 Unfavorable Effects of Risk Selection 60
8.1 Health Insurance Arrangements and Constraints 166
8A.1 Kenya: Something Happened on the Way to Social Health
Insurance 179
8A.2 Tanzania: Providers Fight Managed Care 181
8A.3 South Africa: National Health Insurance Stirs More
Debate Than Action 183
10.1 Insuring the Informal Sector: Lessons from the International
Experience 236
10.2 Main Design Features of Colombia’s Generalized Health
Social Security System 257
12.1 Highlights in National Health Insurance Legislation 317
12.2 Social Health Insurance Coverage 323
16.1 Limitations of Major Health Care Financing Mechanisms 455
xii Contents
16.2 Schematic of Health Financing Model Transition 458
17.1 Ethiopia: Building on Available Infrastructure 477
17.2 Willingness to Bond 479
17.3 Rwanda: Microinsurance 479
17.4 Tanzania: Community Health Funds 480

17.5 Guatemala: When the Long Term Is Not Considered, and
the State Is Not Involved 483
18.1 Options for Regulating and Supervising Health Insurance 502
20.1 New Institutional Economics 540
20.2 The Growth of Universal Social Systems 546
20.3 Net Present Value Calculation 550
FIGURES
1 Objectives of Different Financing Instruments xxiv
2 Shift Traditional Subsidies to Cover Premiums for
the Poor, 2005–15 xxvii
1.1 A Century of Unparalleled Improvement,
but Some Still Have Far to Go 2
1.2 More Public Spending Alone Is Not Enough 2
1.3 Low-Income Countries Have Less Insurance 3
1.4 Low-Income Countries Spend Less on Social Health
Insurance 3
1.5 Rule of 80 Optimal Development Path 4
1.6 Fragile States’ Suboptimal Development Path 4
2.1 Overview of Key Forms of Health Financing 16
2.2 Flow of Funds 17
2.3 Scope of Health Care Financing Mechanisms 19
2.4 Challenges with Private Health Insurance 21
2.5 Out-of-Pocket Expenditure, Selected Countries, 2006 22
2.6 Health Expenditure, National Wealth, and Government’s
Share of Health Spending, 2004 23
2.7 Sources of Health Protection, by Region, 2001 24
2.8 Total Health Expenditure, Selected Low-Income
Countries, 2006 25
2.9 Achieving Universal Coverage in Social Health Insurance 27
2.10 Out-of-Pocket Expenditure, Selected Low-Income

Countries, 2006 29
2.11 Where Poor People without Health Care Live 31
2.12 Density of Health Professionals, Selected Countries, 2004 32
2.13 Regression between Access Defi cit and Human
Development Index 34
4.1 Labor Market Effects of Mandated Health Insurance 74
6.1 Key Health Financing Options at Different Stages of the
Evolution toward Universal Coverage 106
6.2 Basic Components of the Framework to Guide Health
Financing System Reform 109
Contents xiii
7.1 Health Insurance and Health Coverage in Francophone
Sub-Saharan Africa, 1950 to Present 117
7.2 Public Health Expenditure in Francophone Sub-Saharan Africa 133
8.1 Health Financing Structure, Selected AA Countries, 2009 150
8.2 Stages of Coverage and Organizational Mechanisms 152
8.3 Health Insurance Coverage, Selected AA Countries 152
10.1 Share of Informal Workers, Selected LAC Countries,
1990–2005 235
10.2 Mexico’s Health Care System Prior to the SPH Reform of 2003 243
10.3 Chile’s Health System 247
10.4 Chile: Enrolment in SHI, by Income Quintile,
1990 and 2005 248
10.5 Costa Rica: Population, by Employment Status and
SHI Coverage through CCSS, 2004 251
10.6 Costa Rica, Austria, and Germany: Time Required to
Achieve Near-Universal SHI Coverage 255
10.7 Colombia’s Reformed Social Health Insurance System after
Law 100 258
10.8 Colombia: Affi liation Status, by Income Group, 2005 261

10.9 Ecuador: Social Security for Urban Workers and Peasants, 2007 263
10.10 Chronology of Main SHI Phases in Mexico, Chile, Costa Rica,
Colombia, and Ecuado
r 267
10.11 SHI Population Coverage, 1946–68 and Today 268
11.1 Years to Achieve Universal Health Insurance Coverage,
Selected Asian Countries 274
11.2 Health Financing Structure, Selected Asian Countries, 2004 281
13.1 Relationship between Per Capita Income and Health Spending 343
13.2 Health Financing 346
13.3 Phases in the OECD Experience 346
13.4 Different Approaches to Universal Coverage 347
13.5 Effect of Reform on Health Care Expenditure and Economic
Sustainability 351
13.6 Financing Pattern for Health Care in Developing Countries 352
13.7
Degrees of Risk Pooling 353
13.8 Tax Capacity, by Country GDP per Capita 354
14.1 SHI as a Share of Total Health Spending, 1990–2003 361
14.2 Evolution of SHI Adoption and Average Health Expenditure
per Capita in ECA Countries, 1990–2004 373
14.3 Evolution of SHI Adoption and Average Infant Mortality Rate
in ECA Countries, 1990–2004 373
14.4 Frequency Distributions of Probability Values for Tests of
Parallel Trends Assumption 375
14.5 Frequency Distributions of Probability Values for Tests of
Reverse Causality 375
14.6 Frequency Distributions of Probability Values for Estimate of
SHI Impact 381
14.7 Distribution of SHI Impact Estimates from Diffs-in-Diffs Model 381

xiv Contents
16.1 Continuum in Public and Private Roles 437
16.2 Financing Arrangements and Incentive Environments 438
16.3 Application to Health Care Financing 439
16.4 Financing Arrangements and Incentive Environments in
Health 440
16.5 New Indirect Control Mechanisms 441
16.6 Public and Private Roles in Exercising Control 441
16.7 Progress toward Subsidy-Based Health Financing 445
16.8 Progress toward Insurance-Based Health Financing 446
16.9 Limited Taxation Capacity 448
16.10 Ability and Willingness to Pay 449
16.11 Policy Options for Risk Equalization 451
16.12 Matching Risk with Instrument 451
16.13 Objectives of Different Financing Instruments 452
16.14 “Make or Buy” Decision Grid 454
16.15 Policies to Deal with Reduced Contestability and
Measurability 454
16.16 Market Structure 457
16.17 Incentive Environment 458
B16.2.1 Schematic of Health Financing Model Transition 458
16.18 Management Levels 460
16.19 Associated Leadership and Management Skills 460
17.1 Domain of Social Health Insurance 469
17.2 Evolution of SHI by Institutions, Subsidy Circles, Social Quid
Pro Quo 471
17.3 Social Health Insurance Models 472
17.4 Social Health Insurance Development: Benefi ts and
Costs 485
19.1 Design Elements for a Health Insurance Scheme 523

20.1 The First Law of Health Economics 543
20.2 The Second Law of Health Economics 544
B20.2.1 The Three Phases of Universal Social Systems Growth 546
20.3 The Vicious Circle of Underdevelopment 548
20.4 The Diamond of Health Care 553
A.1 The Demand for Insurance 562
A.2 Optimal Degree of Coverage in Health Insurance 564
A.3 Differentiation of Benefi ts 570
A.4 Ex Post Moral Hazard 572
A.5 Effect of Insurance Coverage on Monopolistic Pricing 587
A.6 Forms of Vertical Restraints and Integration Imposed by the
Insurer 588
B.1 Determinants of Health Insurance Development 624
B.2 Simple Correlations between Health Insurance Expenditure
and Political and Institutional Factors 629
B.3 Instability of Income Growth per Capita 632
BA.1 Correlations between Political and Institutional Factors and the
Development of Health Insurance 643
Contents xv
TABLES
2.1 Overview of Health Insurance Approaches 18
2.2 Pros and Cons of Key Financing Mechanisms for Social Health
Protection 20
2.3 Sources of Social Health Protection Financing, by Country
Income, 2002 23
2.4 Household Use of Financial Mechanisms for Coping with
Health Care Expenses, Selected Countries, 2005 26
2.5 Formal Health Protection Coverage, Selected Latin American
Countries and Selected Years, 1995–2004 28
2.6 Estimated Access Defi cits, Selected Countries, 2004 33

6.1 Rules and Organizations That May Infl uence a Country’s Health
Financing Functions 108
7.1 Health Expenditure in Francophone Sub-Saharan Africa, 2009 118
7.2 Health Insurance Coverage in Francophone Sub-Saharan
Africa, 2004 120
7.3 Mandatory Health Insurance Systems, Selected Francophone
Sub-Saharan African Countries 123
7.4 Voluntary Insurance Systems, Selected Francophone
Sub-Saharan African Countries 126
7.5 Political and Institutional Factors Infl uencing Health
Insurance in Francophone Sub-Saharan Africa 132
7A.1 Overview of Francophone Sub-Saharan African
Countries, 2009 141
8.1 Social and Economic Characteristics, Selected AA
Countries, 2009 149
8.2 Health Insurance Arrangements, Selected AA Countries 153
8.3 Potential Stakeholders in Scaling Up Mandatory Health
Insurance 157
8.4 Governance and Economic Capacity Indicators, Selected AA
Countries 162
9.1 MENA: Total Expenditure on Health as Percent of GDP, 1995,
2000, 2008 193
9.2 MENA: General Government Expenditure on Health as
Percent of Total Expenditure on Health, 1995, 2000, 2008 195
9.3 MENA: Out-of-Pocket Expenditure as Percent of Private
Expenditure on Health, 1995, 2000, 2008 197
9.4 Health Insurance Coverage, Selected MENA Countries 205
9A.1 Government Health Expenditure as Percent of Total
Government Expenditure, 1995–2008 217
9A.2 Out-of-Pocket Expenditure as Percent of Total Health Expenditure,

MENA and Global Averages, 1995–2008 219
9A.3 MENA: Per Capita Health Spending, 1995, 2000, 2008 220
9B.1 Low-Income and IDA Countries, the Republic of Yemen and
Djibouti 221
9B.2 Middle-Income Countries, Mashreq Countries 222
9B.3 Middle-Income Countries, Maghreb Countries 225
xvi Contents
9B.4 Confl ict-Affected Countries, Iraq and West Bank and Gaza 226
9B.5 High-Income Countries, Gulf Cooperation Council 227
10.1 World Bank Regions: Selected Economic and Development
Indicators, circa 2005 233
10.2 Mexico: New Financial Architecture of SHI 243
10.3 Costa Rica: Policy Milestones for Promoting SHI Enrolment
through CCSS 251
10.4 Costa Rica: Legal Contributions to SHI 253
10.5 Costa Rica: Ambulatory and Inpatient Care Utilization
Statistics 254
10.6 Costa Rica: Evolution of SHI Coverage 254
10.7 Colombia: Evolution of SHI Coverage and Per Capita GDP 259
10.8 Colombia: Health Insurance Coverage, by Socioeconomic
Group, 1993, 1997, and 2003 259
10.9 Ecuador: Coverage of Social Security System, by Benefi ciary
Population, 2007 262
10.10 Ecuador: Total Public Health Expenditure (Actual), 2000–2003 264
10.11 Evolution of Health Financing in Many LAC Countries 265
10.12 Paths Chosen to SHI, Selected LAC Countries 266
11.1 Socioeconomic, Demographic, and Health Conditions, Selected
Asian Countries 276
11.2 Income Groups, Selected Asian Countries, 2006 278
11.3 Urbanization, Poverty, and Inequity Rates, by Income and

Region 279
11.4 Broad Comparison of Developing-Country Regions 279
11.5 Age-Standardized Death Rates, by Income Group and
Region, 2000 280
11.6 Intracountry U-5 Mortality Inequality 280
11.7 Health Expenditures, by Income Group and Region 281
11.8 Japan: Timeline of Historical Development of Social Health
Insurance 291
11.9 Korea, Rep.: Timeline of Insurance Expansion 292
11.10 Taiwan, China: Timeline of Insurance Expansion 292
11.11 Thailand: Timeline of Historical Development of Social
Health Insurance 294
11.12 China: Timeline of Historical Development of Social Health
Insurance 298
11.13 Philippines: Timeline of Health Insurance Development 301
11.14 Indonesia: Timeline of Historical Development of Social
Health Insurance 304
12A.1 The Economy 331
12A.2 Health Care Expenditure, 2004 332
12A.3 Health Care Expenditure as Percentage of GDP 332
12A.4 Health Care Expenditure per Capita 333
12A.5 Health Indicators, 2004 333
12B.1 Overview of Health Financing/Social Health Insurance
Scheme, Selected West European Countries 334
13.1 Landmark Dates in Introduction of Universal Coverage 349
Contents xvii
14.1 Descriptive Statistics for Outcome Variables 369
14.2 SHI Impact Estimates 377
15.1 Political Strategies to Manage the Political Economy of Health
Financing Reform 425

16.1 Implementation Arrangements for Government-Run
Mandatory Health Insurance 447
18.1 Factors Infl uencing the Regulatory and Supervisory
Environment 500
18.2 Opportunities for Public-Private Partnerships in Health Care 510
19.1 Potential Benefi ts and Risks in Health Insurance Development 522
A.1 Alternatives for Achieving Solidarity in Health Insurance 567
A.2 Factors Affecting the Size of the Benefi ts Package 571
A.3 Factors Affecting Risk-Selection Effort 576
A.4 Factors Affecting the Net Price of Health Insurance (Loading) 580
A.5 Factors Affecting Insurer-Driven Vertical Integration 589
A.6 Factors Affecting Provider-Driven Vertical Integration 595
A.7 Forms of Integration 598
A.8 Factors Affecting the Degree of Concentration of Health
Insurance Sellers in Markets for Private Health Insurance 600
A.9 Correlations of Trend Deviations in the Benefi ts of U.S. and
German Social Insurance 606
A.10 Correlations of Trend Deviations in the Benefi ts of U.S. and
German Private and Social Insurance 607
A.11 Compensation Asked for Cutbacks in Swiss Social
Insurance, 2003 609
AB.1 Regulations That Can Lower Effi ciency 617
AB.2 Regulations That Can Enhance Effi ciency 618
B.1 Variables and Sources 625
B.2 Descriptive Statistics 626
B.3 Health Insurance Expenditure, by Level and Region 628
B.4 Determinants of Total Health Insurance Development 637
B.5 Determinants of the Development of Social Insurance and
Private Insurance 639
B.6 Summary of Main Results on the Determinants of the

Development of Health Insurance in Developing Countries 640
BA.1 Countries in the Sample 640
BA.2 Correlations between the Variables 642

xix
Foreword
T
his book takes the reader on a fascinating historical and global voyage of
the pivotal role that health insurance played in expanding access to health
care and protecting households from the impoverishing effects of illness
from the late 19th to early 21st centuries.
During the early evolution of health insurance at the end of the 19th and
beginning of the 20th centuries, the nascent health insurance programs were
initiated by professional guilds and communities that helped their members and
households weather the loss of income from a breadwinner or critical member of
the family rather than pay for health care itself.
When medical interventions became more effective in preventing and treating
diseases, the European friendly societies and sickness funds also started to pay for
health care itself in addition to the income support they provided to households
with sick family members. The state initially played only a marginal role in par-
tially subsidizing premiums for the poor or paying for almshouses and poorhouses.
As time progressed, the role of the state in providing health insurance became
more prominent, to the point where in some countries, like the United Kingdom
and the great experiment in the former Soviet Union, health insurance was—for
a period of time—eliminated altogether. In recent years, even such “noninsur-
ance” countries have reintroduced health insurance for complimentary, supple-
mentary, and even primary coverage.
Although some developing countries tried to leapfrog this process and intro-
duce national health systems or national health insurance programs without
fi rst building the social and physical infrastructure that is needed for such sys-

tems to work, most low- and middle-income countries are retracing the histori-
cal experiences of Europe, North America, and Australia.
The contributing authors conclude this book with a proposal for a new para-
digm for health insurance—a pluralistic multipillar system in which both the
private sector and the state play a crucial role and in which expansion of health
insurance coverage is accompanied by a parallel investment in service delivery
to ensure that lofty ideals about equity are matched by access to quality services
on the ground.
I congratulate the contributing authors for the overarching research that went
into this volume and the invaluable lessons for developing countries trying to
improve health care for their populations.
Willem van Duin
Chairman of the Executive Board of Directors, Achmea
Member of the Board, International Federation of Health Plans

xxi
Preface
A
s the world recently turned its attention to the struggle of expanding
health insurance coverage for 40 million people in the United States, it is
important not to forget the 4 billion people in low- and middle-income
countries that face the same hardship.
Millions of the poor have already fallen back into poverty as a result of the
ongoing global fi nancial crisis. Millions more are at risk before full recovery. It is
the poor and most vulnerable that are at greatest risk due to lack of protection
against the impoverishing effects of illness.
Europeans, Canadians, Australians, and many others who live in countries
where universal coverage was achieved many years ago, watched with bewil-
derment the debates in the U.S. Congress and Senate. How could anyone be
opposed, they ask, to reforms aimed at securing access to affordable health

insurance for the currently unprotected in the world’s richest country? What
argument, they ask, could anyone possibly give to oppose a reform that would
extend protection to those vulnerable segments of the population?
Yet, it is precisely the same type of debate—often fueled by ideologically
oriented stakeholders and donors—heard in India, Kenya, Pakistan, Senegal,
Uganda, and many other countries struggling themselves to introduce health
insurance reforms.
The research for this volume shows that, when properly designed and coupled
with public subsidies, health insurance can contribute to the well-being of poor
and middle-class households, not just the rich. And it can contribute to develop-
ment goals such as improved access to health care, better fi nancial protection
against the cost of illness, and reduced social exclusion.
The protagonists are divided into several camps. Supporters of expanded
health insurance coverage claim that it provides access to care when needed
without the long waiting lists, low-quality care, and rudeness often suffered by
households using public services provided by Ministries of Health. They high-
light that many of the problems observed with health insurance are germane to
third-party payment systems and therefore equally true in the case of subsidized
or free access to government-provided health services.
Opponents vilify health insurance as an evil to be avoided at all cost. To them,
health insurance leads to overconsumption of care, escalating costs—especially
administrative costs—fraud and abuse, shunting of scarce resources away from
the poor, cream skimming, adverse selection, moral hazard, and an inequitable
health care system.
Skeptics of both of these approaches claim that neither health insurance nor
government-funded health systems have worked in addressing the biggest health
xxii Preface
challenges in developing countries. Instead they believe that both government
and donor funding would be better spent if channeled into disease-specifi c areas
for which there are well-known and cost-effective interventions. This approach,

they claim, is easier to implement and allows more direct monitoring of results.
Critics of this latter approach claim that, although the billions of dollars spent
during recent years have had a notable impact on outcomes related to HIV/AIDS,
malaria, and TB, these gains have come at a heavy price in terms of parallel dete-
riorations in the sustainability and capacity of the underlying health system in
addressing other health challenges such as maternal and child care.
There is no shortage of anecdotal personal experience to substantiate the
arguments on all sides of this debate. Many have been refused care or had to
pay informal charges even though they were members in good standing with
a health insurance scheme. Others have seen a sick relative wait for hours in
a busy emergency room of a public hospital or die because of shortages in
essential drugs and skilled staff in public facilities. Doctors earning little over
US$500 a month in a public clinic can often walk across the street to an inter-
national donor organization willing to pay them over US$5,000 a month.
Today many low- and middle-income countries are no longer listening to this
dichotomized debate between vertical and horizontal approaches to health care.
Instead, they are experimenting with new and innovative approaches to health
care fi nancing. Health insurance is becoming a new paradigm for reaching the
Millennium Development Goals (MDGs). In Nigeria, subsidized health mainte-
nance organizations (HMOs) are used to provide health insurance coverage for
the population. The National Health Insurance Scheme in Ghana has reached
almost 70 percent population coverage through nongovernmental district
mutual health organizations. In Rwanda, community-level health insurance has
reached coverage rates higher than 80 percent in some areas. These are a few of
the many examples provided in this book that challenge common myths about
the limited potential role of health insurance in developing countries.
Building on Past Reviews
Scaling Up Affordable Health Insurance: Staying the Course, edited by Alexander
S. Preker, Marianne E. Lindner, Dov Chernichovsky, and Onno P. Schellekens is
the fi fth volume in a series of in-depth reviews of the role of health care fi nanc-

ing in improving access to needed care for low-income populations, protecting
them from the impoverishing effects of illness and addressing the important
issues of social exclusion in government-fi nanced programs. Success in improv-
ing access and fi nancial protection through community and private voluntary
health insurance has led many countries to attempt to make membership com-
pulsory and to offer subsidized insurance through the public sector. Arguments
in favor of this approach include the potential for achieving higher popula-
tion coverage, broadening the risk pool by collecting at source from formally
employed workers, and collective action in securing value for money in pur-
chasing health care from providers.
Preface xxiii
In an earlier volume, Health Financing for Poor People: Resource Mobilization
and Risk Sharing, the coeditors Alexander S. Preker and Guy Carrin presented
work from a World Bank review of the role of community fi nancing schemes in
reaching the poor in outlying rural areas or inner city slums. Most community
fi nancing schemes have evolved under severe economic constraints, political
instability, and lack of good governance. Government taxation capacity is usu-
ally weak in poor countries, formal mechanisms of social protection for vulner-
able populations absent, and government oversight of the informal health sector
lacking.
In this context of extreme public sector failure, community involvement in
the fi nancing of health care provides a critical, though insuffi cient, fi rst step in
the long march toward improved access to health care by the poor and social
protection against the cost of illness. Though not a panacea, community fi nanc-
ing can complement weak government involvement in health care fi nancing
and risk management related to the cost of illness. Based on an extensive sur-
vey of the literature, the main strengths of community fi nancing schemes are
the degree of outreach penetration achieved through community participation,
their contribution to fi nancial protection against illness, and their increase in
access to health care for low-income rural and informal sector workers. Some of

their main weaknesses are the low level of revenues that can be mobilized from
poor communities, the frequent exclusion of the very poorest from participation
in such schemes without some form of subsidy, the small size of the risk pool,
the limited management capacity in rural and low-income contexts, and their
isolation from the more comprehensive benefi ts that are often available through
more formal health fi nancing mechanisms and provider networks. Many of
these observations are also true for private voluntary health insurance.
In another related work, Social Reinsurance: A New Approach to Sustainable Com-
munity Health Financing, the coeditors David M. Dror and Alexander S. Preker
detail the use of community, rather than individual, risk-rated reinsurance as
a way of addressing some of the known weaknesses of community fi nancing
schemes. The authors of this volume show how standard techniques of re-
insurance, used for a long time in other branches of insurance, can be applied
to microinsurance in health care. This is especially relevant in situations in
which the underlying risk pool is too small to protect the schemes against the
expected expenditure variance. In this context, the reinsurance provides a “vir-
tual” expansion of the risk pool without undermining the social capital under-
pinning participation by rural and urban informal sector workers in such small
community-based schemes.
In a third volume, Private Health Insurance in Development: Friend or Foe?, the
coeditors Alexander S. Preker, Richard M. Scheffl er, and Mark C. Bassett pres-
ent work on the economic and institutional underpinnings of private voluntary
health insurance in low- and middle-income countries. In the fourth volume,
Global Marketplace for Private Health Insurance: Strength in Numbers, the coeditors
Alexander S. Preker, Peter Zweifel, and Onno P. Schellekens present 12 case studies