PHM-Exch> Finance Healthcare, Not Insurance Premia By Jomo Kwame Sundaram

[Claudio Schuftan]

KUALA LUMPUR, Malaysia, Jun 26 2024 (IPS) - Comparative research on
healthcare financing options shows revenue-financed healthcare to be the
most cost-effective, efficient, and equitable, while all health insurance
imposes avoidable additional costs.

*Private health insurance*
Rejecting the private health insurance option is easy due to well-known US
problems. Risk pooling is limited as private insurance only covers those
who can afford it.

The resulting ‘moral hazard’ and ‘cherry-picking’ problems reflect the
public’s weak bargaining power vis-à-vis healthcare providers and insurance
companies.

US health spending per capita is the highest, partly due to additional
private health insurance costs. The share of US national income spent on
healthcare has risen to 18%!

Such avoidable insurance management costs are quite high, averaging almost
4% more. Consequently, upward cost pressures remain intense.

Yet, despite spending so much, it only ranks 40th in average life
expectancy worldwide. Its other health indicators also leave much to be
desired.

Hence, greater spending does not necessarily improve health outcomes, and
spending more on insurance does not improve health either.

*Revenue financing*
Hence, the main healthcare financing choices are social health insurance
(SHI) and revenue financing, which enables risk pooling for entire national
populations.

After reviewing extensive evidence, the World Bank’s Adam Wagstaff found
revenue financing much more cost-effective, efficient, and less expensive
than insurance options.

Germany, the only major OECD country heavily reliant on SHI, is second only
to the US in health spending per capita, largely due to insurance
administration costs.

With insurance premium revenue increasingly inadequate, the government
finances the ever-growing funding gap. Rather than being a healthcare
financing option for the future, it should be recognised as an atavism,
even for highly unionised Germany.

*Social health insurance*
SHI advocates insist it is needed owing to inadequate fiscal means. But
budget shortfalls imply a lack of political will. SHI’s claims to raise
more money are grossly exaggerated.

SHI premiums are effectively flat or pro rata taxes, making overall tax
incidence more regressive. SHI financing is inadequate everywhere and under
growing stress due to ageing societies.

Most governments claim to be committed to inclusion and equitable access,
but SHI would undermine declared national commitments to the WHO’s
‘healthcare for all’ and the UN SDGs’ ‘universal healthcare’.

Besides betraying these commitments, SHI cannot ensure the needed funding
or financial sustainability. Any realistic government should recognise SHI
will be politically unpopular.

SHI’s costs and dangers, including the perverse incentives involved, are
rarely acknowledged. Employers have minimised their SHI liabilities by
casualising labour contracts. Rather than employ workers directly, they
hire indirectly, using various contract labour arrangements.

*Priorities?*
The typical emphasis on curative health services has also worsened health
outcomes by neglecting vital public health programmes. By emphasising
curative services, many causes of ill health do not get sufficient
attention.

Many preventive and public health problems remain neglected and
underfunded. Most governments must spend more on prevention, especially to
address largely preventable non-communicable diseases (NCDs).

The world needs far better healthcare financing. Various complementary
reforms are also required. Instead, poorly sequenced, ill-considered
reforms have been the norm in recent decades.

The resulting ‘non-system’ offers poor, weak and ineffective incentives for
public and preventive health provision. Meanwhile, potentially lucrative
segments have been privatised or contracted out, often to incompetent
political cronies.

The UK NHS capitation system successfully transformed doctors’ incentives.
Instead of prioritising patient payments, UK doctors are incentivised to
ensure the well-being of those under their care.

*Recognise market failure*
Former UK Conservative Party adviser and “non-interventionist market
economist” Professor Geoffrey Williams rejects “any [government]
intervention … in almost every area of economic activity, but not in
health, because health is quintessentially the place where markets fail.

“That is why we use health more often than any other example when we teach
about market failure, particularly insurance market failure. We know the
health market fails and that we cannot find market solutions to those
market failures as we might in other forms of market failure.

“We know that government tax funding is the only real way of providing
universal healthcare.” Neither universal healthcare nor health for all can
be achieved without adequate revenue financing, even if termed insurance.

*Improving healthcare*
Malaysia has low infant and maternal mortality rates and improved life
expectancy thanks to simple, low-cost reforms introduced from the 1960s,
especially training village midwives to help mothers and babies.

Lowering such mortality is responsible for over four-fifths of increased
Malaysian life expectancy over the decades. Now, much more should be done
to improve babies’ and mothers’ nutrition for the ‘first thousand days’
from conception to age two.

A ‘hybrid system’ would not work, as it would only provide some public
financing to address egregious ‘market failures’. Targeting would be worse,
both costly and involving both inclusion and exclusion errors.

With political will, revenue financing is sustainable despite rising costs.
We should renew our commitment to public healthcare, not as it has become,
but as it should be.
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