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Improving the Roles and Relationships between the Public and Private Sectors in Increasing Financial Risk Protection

posted Jun 17, 2013, 8:00 AM by Kate Hawkins

The most recent webinar in the Private Sector in Health series covered an issue which is often neglected - the relative roles of the public and private sectors in increasing access to health insurance for low-income populations. Introducing the meeting, chair Thierry van Bastelaer (SHOPS Project, Abt Associates), explained that it is common to hear two sharply divided sets of views when this topic is discussed: people tend to either express the opinion that it is the responsibility of the government alone to provide financial protection or that the government cannot do anything right and that poor people cannot afford to wait until the public sector starts providing free care for all. However,  given the complexity and the fluidity of the incentives that drive the public and private sectors in different countries it would be very surprising if one sector could always do everything better than the other. Resource constraints in developing countries mean that the government is forced to concentrate on some elements of health financing, leaving the rest unattended or asking the private sector to take care of it. So the challenge is to identify in each setting where the comparative advantage lies and how to operationalize coordination and sequencing of these elements. This is what the webinar panellists set out to explore.

A view from public financing

The first speaker, Sheila O'Dougherty (Abt Associates), opened her presentation by saying that the emergence of universal health coverage as a global goal has exposed a number of dichotomies which could act as a barrier to its attainment. For example, health system strengthening versus vertical service delivery and government-funded services versus health insurance. But she explained that it is time to create complimentary relationships between the two. Public financing can help to set the rules of the game in a way which more clearly defines the role of private financing: stewardship, governance and regulation is the responsibility of government. It also provides a greater contribution to risk protection for poor and vulnerable populations. However, there are cases where Ministries of Health ignore the private sector or rely on it completely and a better balance is necessary.

Sheila outlined how we need to improve health purchasing mechanisms so that they better target health budget funds to priority services and poor populations. This means a shift from line-item budgets for health facilities to output-based provider payment systems. For example, in Nigeria free maternal newborn and child health services are working better when they use output-based provider systems. It improves coordination and makes it clear what the space for private financing is. She argued that countries need to put in place a regulatory framework so that public money can go to private providers and vice versa. To do this they need a clear vision of the trajectory of travel so that this can be implemented in a strategic fashion.

There are no silver bullets in health financing

Alexander Preker (Columbia University, NYU Wagner School, and Icahn School of Medicine, formerly Head of Health Industry, World Bank/IFC) was the second speaker on the panel. He explained that the reality is that in many low-income countries the pooled financing which goes through government mechanisms or social insurance funds remains very small. Poor people are using mechanisms that are non-governmental  because they may not be satisfied with what is offered in the public sector or there are gaps in how far the public sector has penetrated.

He went on to say that in low-income countries there tends to be little risk-pooling. As countries develop state subsidies, insurance mechanisms and government spending starts playing a larger role and donor aid to the health system reduces. However many people still end up paying out-of-pocket expenses for health care. For example in Nigeria despite government spending and insurance schemes much of health financing is out of pocket.

Most health systems combine financing mechanisms – there is no such thing as a purely public or private health system. There are relative advantages to different financing mechanisms which are related to insurable risks and non insurable risks. Insurable risks have a low frequency, are unpredictable and costly, such as a catastrophic cancer. In the case of these events, subsidies or vouchers that have a fixed cost (for example, $10) are unlikely to cover the patient’s care and these instances of ill-health are less likely to be planned out by the health system. Low variance, predictable health issues, such as antenatal care, require different financing mechanisms and can be worked into insurance premiums. Currently most government financing is given directly to clinical services. Alexander argued that there is a need for some of this money to be channelled to insurance mechanisms which would allow health financing to cover risks as well as subsidies, which would enable health systems to deal with high risk events.

Indian experiences

Somil Nagpal (World Bank, former insurance regulator in India) was the final speaker in this event and provided the view from India. India spends about 4%, or $40 per capita, on health. As a result more than 17% of the world’s population manages with less than 1% of the world’s health expenditure. Out-of-pocket payments represent over 60% of the total health expenditure, which is a common cause of impoverishment, especially due to catastrophic expenditure. Public health spending is inadequate and there are inequities across geographical areas and different groups within the population.

Somil outlined how the government has introduced limited financial autonomy in public hospitals, where the facilities could decide how funds were used. Case based package rates for in-patient care were introduced by some early health insurance schemes. In parallel there was a rapidly growing, highly competitive private insurance industry, which primed a lot of private hospitals to join their networks and receive third party payment.

In the last decade many programmes have been introduced which concentrate on the poor and informal sectors and which are largely subsidised by the state and tend to focus on in-patient care. Insurance intermediaries have been used by the public sector to purchase private healthcare services at an unprecedented scale. As a result the government sponsored health insurance programmes are deeply involved with these private networks, this has had some positive effects. Patients have greater choice in terms of where they seek care and there is increased competition among facilities. There is a new and more binding compact between the government and citizens, where entitlements to particular packages of care are explicitly defined. The shift from inputs to outputs has created an enabling environment for increased accountability for results. But challenges remain:

·         There is a limited benefits package, with an in-patient/surgical focus. This needs to be expanded but this expansion has financial and operational implications.

·         These partnerships create new functions for the government who have limited institutional and human resource capacity.

·         To date,there has been no systematic attempt to cost services and collect market prices. Monitoring needs to be improved.

·         Finally, there is insufficient information for consumers on these packages.

The panel presentations were followed by a lively question and answer session. A recording of the event will be made available shortly. To learn more about private sector involvement in health financing, please visit the SHOPS Project website http://www.shopsproject.org/