Hi, Yves. Jomo’s post summarizes new research that further supports the notion that injecting insurance companies into healthcare raises costs without improving outcomes. And, as an aside, insurance companies can worsen patient outcomes by denying or delaying treatment, and they waste doctors’ time on billing that should be treating patients. Please circulate this post to skeptics who don’t yet understand the enormous burden that healthcare insurance ultimately creates.
Jomo Kwame Sundaram, former United Nations Under-Secretary-General for Economic Development. Originally published in Jomo’s website
Comparative studies of health care financing options have shown that revenue-financed care is the most cost-effective, efficient and equitable, while all health insurance imposes additional costs that can be avoided.
Private health insurance
It’s easy to reject the option of private health insurance due to a well-known problem in the United States: private insurance only covers those who can afford it, so the risk pool is limited.
The resulting problems of “moral hazard” and “cherry-picking” reflect the weak bargaining power of citizens vis-à-vis health care providers and insurers.
The United States has the highest per capita health care expenditures, due in part to the added costs of private health insurance. Health care expenditure as a percentage of national income in the United States has risen to 18%.
These avoidable insurance administrative costs are very high, about 4% higher on average, and as a result, upward cost pressures remain strong.
Yet despite all this spending, Japan’s life expectancy ranks 40th in the world, and other health indicators also leave ample room for improvement.
Thus, higher spending does not necessarily lead to better health, and higher spending on insurance does not lead to better health.
Revenue Financing
Therefore, the main options for financing health care are social health insurance (SHI) and revenue financing, which allows for population-wide risk pooling.
After reviewing an extensive body of evidence, the World Bank’s Adam Wagstaff found that revenue financing is far more cost-effective, efficient and cheaper than insurance options.
Germany, the only major OECD country that relies heavily on SHI, is second only to the United States in per capita health care expenditures, primarily due to insurance administration costs.
With contributions becoming increasingly scarce, the government is providing funds to plug an ever-widening funding gap. This should be seen as a throwback, not an option for the future of health financing, even in highly unionized Germany.
Social Health Insurance
Supporters of the SHI argue that it is necessary because of insufficient financial means, but a lack of funding means a lack of political will, and claims that the SHI will raise more money are grossly exaggerated.
SHI premiums are effectively flat or pro rata taxes, making the overall tax burden more regressive.Funding of SHI is inadequate everywhere and is increasingly stressed by an ageing society.
While most governments claim to be committed to inclusion and equitable access, SHI undermines countries’ declared commitments to the WHO’s “health care for all” and the UN SDGs’ “universal health care.”
As well as betraying these promises, SHI will be unable to secure the necessary funding or guarantee financial sustainability, and any realistic government should recognise that SHI will be politically unpopular.
The costs and dangers of SHIs, and the perverse incentives that accompany them, have gone largely unrecognized. Employers have minimized their SHI liabilities by casualizing labor contracts: rather than hiring workers directly, they hire them indirectly using a variety of contract labor arrangements.
What are the priorities?
The trend towards curative health services has led to the neglect of important public health programmes and to poorer health outcomes. The focus on curative health services has led to insufficient consideration of the many causes of ill health.
Many prevention and public health issues remain neglected and underfunded, and most governments need to commit more resources to prevention, especially addressing non-communicable diseases (NCDs), which are largely preventable.
The world needs much better health financing, and a range of complementary reforms, but ill-sequenced and poorly thought-out reforms have become the norm in recent decades.
The resulting “non-system” has weak and ineffective incentives for the provision of public and preventive health services, while potentially profitable areas have been privatized or outsourced, often in the hands of incompetent political cronies.
Flat-fee pricing in the UK NHS has successfully transformed doctor incentives: instead of prioritizing patient payment, UK doctors are now incentivized to ensure the health of the patients they treat.
Recognizing market failures
Professor Geoffrey Williams, a former adviser to the British Conservative Party and a “non-interventionist market economist,” has said: “I reject any (government) intervention in almost every area of economic activity, but not in health care, because this is precisely an area where the market does not work.”
“That’s why I use health care more often than any other example when I teach about market failures, particularly insurance market failures. We know that health care markets fail, and we know that we can’t find market solutions to health care market failures as we can with other forms of market failures.”
“We know that financing through government taxation is the only realistic way to provide universal health care.” Even if we call it insurance, we cannot achieve either universal health care or health for all without adequate revenue financing.
Improved Healthcare
Malaysia has achieved low infant and maternal mortality rates and improved life expectancy thanks to simple, low-cost reforms introduced since the 1960s, particularly the training of village midwives to help mothers and babies.
Reducing these deaths has led to an increase in Malaysian life expectancy by more than four-fifths over the decades.Now, more needs to be done to improve nutrition for babies and mothers in the “first 1000 days” from conception to age two.
A “hybrid system” would not work because it would only provide some public funding to address significant “market failures.” Targeting would be even worse, more costly, and fraught with both inclusion and exclusion errors.
With political will, revenue financing is sustainable despite rising costs. We must renew our approach to public health care, not as it has always been, but as it should be.
