Governing Mandatory Health Insurance:
Learning from Experience
Edited by William D. Savedoff and Pablo Gottret
August 12, 2007
Table of Contents
Executive Summary
Chapter 1 (Savedoff)
Concepts, Framework and Cases
Chapter 2 (Hansl, Rahola, and Gottret)
Good Governance Dimensions in Mandatory Health Insurance: A Framework for Performance Assessment
Chapter 3 (Cercone and Pacheco)
Costly Success: An Integrated Health Insurer in
Chapter 4 (Habicht)
Good Fortune or Good Governance? A Single-Payer Fund in
Chapter 5 (Maarse)
From Corporatism to Professionalism: Sickness Funds and Voluntary Funds in the
Chapter 6 (Bitran, Muñoz, Escobar, and Farah)
The Public Sector Can Compete: A Hybrid Health Insurance System in
Chapter 7 (Savedoff)
Conclusions: Governance Trends and Lessons for Developing Countries
Abstract
Mandatory health insurance schemes are being proposed or expanded in many developing countries, yet problems with governing such systems have emerged in countries with longer experiences of them. This manuscript looks at the institutional and political forces that affect the behavior of mandatory health insurance entities within their social and historical context. It considers how coherent decision-making structures; stakeholder participation; supervision and regulation; consistency and stability; and transparency and information influence such entities’ coverage, financial protection, and efficiency. It addresses these questions with experiences from four countries –
Executive Summary
This book provides guidance to countries that want to reform or establish mandatory health insurance with regard to the institutional structures and forms of governance that are most likely to succeed. It specifically aims to identify key differences in how mandatory health insurance systems are governed and cull lessons from experience. By describing governance arrangements in greater detail and making the effort to develop institutional variables that can be compared across different countries, these studies also contribute to the applied research literature that, if successful, will ultimately link different institutional forms to better and worse performance.
This book does not address the overall merits of mandatory health insurance. At the same time that many developing countries are trying to adopt mandatory health insurance systems, countries with long experience – such as
Defining Mandatory Health Insurance
The definition of mandatory health insurance (MHI) is quite simple: it is a system that pays the costs of health care for those who are enrolled and in which enrollment is required for all members of a population. It is quite distinct from systems in which health insurance is largely voluntary and those in which out-of-pocket payments predominate. It is a little more difficult to distinguish MHI systems from those in which government services are provided at little or no cost to the population (e.g. the National Health Service of Britain or Malaysia), except that in MHI systems the insurance function is generally explicit and provision is often separated from financing.
Defining Governance
Broad definitions of governance attempt to encompass all of the relevant factors that influence the behavior of an organization. For mandatory health insurance entities, these factors include its relationship to the government, its members, any other payers (e.g. employers), health care providers, and other insurers (e.g. competitors). Narrower definitions of governance look specifically at the “control” mechanisms that are used to hold the entity accountable. These latter definitions are more concerned with such issues as the mechanisms by which Board Members are elected, the scope and style of government supervision and the scope of managerial discretion in defining benefits, contribution rates, and negotiating contracts.
The existing literature on mandatory health insurance systems addresses governance indirectly to the extent that it considers the pros and cons of affiliation rules, single or plural funds, alternative payment mechanisms, and options for defining benefits and contribution rates (Consider for example, Normand & Weber 1994, Eichler & Lewis n.d., Carrin & James 2004). Using the literature that specifically addresses governance of private corporations and public entities demonstrates the need for attention to ownership, selection of board members, and managerial incentives, as in the literature on private corporate governance, and importance of capture, responses to multiple principals, and the emergence of vested interests in the literature on public governance. It illustrates the tradeoffs that emerge in determining the level of independence and discretion afforded to agencies. Finally, it shows the importance of publicly accessible information to proper oversight and the roles that can be played by different stakeholders, depending on how oversight is structured.
Framework and Models
Numerous frameworks are available for analyzing mandatory health insurance from the broader literature on health systems and health system performance (e.g. Kutzin 2001; WHO 2000; La Forgia 1994; Magnoli 2001; Preker and Harding 2000; Mossialos et al 2002; World Bank 2004). The framework used here emphasizes the relationships between different actors and focuses on how insurance entities are held accountable to certain agents – such as governments, beneficiaries or employers (see Table ES.1).
The general rules for good governance are fairly simple: align incentives and make information available and transparent. Achieving this requires a variety of mechanisms which can be usefully grouped into five dimensions of governance, namely coherent decision-making structures; stakeholder participation; supervision and regulation; consistency and stability; and transparency and information.
The choices within each of these five dimensions must also be consistent with the system’s context. Numerous factors condition the effectiveness of governance arrangements, but two particular features make a substantial difference: whether there are multiple competing insurers and the forms of the relationship between payers and providers.
Table ES.1: Analytical Framework for Mandatory Health Insurance Governance
| Mandatory Health Insurance Entities are accountable to … |
| |
| Beneficiaries |
| Government |
| Supervisors |
| Regulators |
| Contributors and Others |
| |
| through five governance dimensions … |
| |
| Coherent Decision-Making Structures |
| Stakeholder Participation |
| Transparency and Information |
| Supervision and Regulation |
| Consistency and Stability |
| |
| within a particular context of … |
| |
| Competitors |
| Relationships with Providers |
| Other factors |
For this reason, it is useful to distinguish four models of mandatory health insurance based on contextual factors and distinguished by the existence, or not, of competition and the relationship with providers. The case studies in this book each represent a different model: Direct Provision (
Table ES2: MHI Models and Implications for Accountability
| Model | Number of Insurers | Provider Payment | Selected Implications for Accountability Mechanisms |
| Direct Provision | Single | Public Administration and/or Internal Contracting | - May have soft budget constraints - Lack of benchmarking information - Risk of capture by providers - Oversight requires political or economic counterweight to the Insurer |
| Single Payer | Single | Monopsonist negotiating with multiple providers | - May have soft budget constraints - Lack of benchmarking information - Risk of capture by providers - Oversight requires political or economic counterweight to the Insurer |
| Corporatist | Multiple | Negotiation between representative associations | - Possible to rely on associations for overseeing certain aspects of performance. - Need to assure legitimate process for selecting representatives |
| Regulated Market | Multiple | Various forms of contracting providers with different payment setting processes | - Possible to elicit information about costs through comparative analyses. - Possible to rely on shareholders for assuring efficiency - Consumer protection procedures need to be in place - Risk that insurers may “capture” regulator |
Other factors that influence the performance of a mandatory health insurance agent include economic variables such as national income level, formality of the labor market, the supply of medical care services, and the depth of financial markets; as well as political variables such as the capacity for enforcing laws, contracts, and regulations. Any research program has to determine how it will control for these environmental factors for two reasons. First, it is necessary to isolate the policy variable from these potentially confounding factors. Second, controlling for these environmental factors is necessary to judge the generalizability of findings beyond particular contexts.
Dimensions and Features of Good Governance
The governance of any mandatory health insurance (MHI) system encompasses three essential functions: (i) the stewardship of the system (i.e. active monitoring and adjustment to keep the system working toward its broad social goals); (ii) the structure for oversight of the system (i.e. its basic objectives, design, rules and regulations); and (iii) the administration of the health insurance institutions themselves.
Good governance is fundamental for mandatory health insurance systems to perform well. The general dimensions that are used to define good governance for governments, corporations and financial markets, and which also apply to mandatory health insurance systems are: coherent decision-making structures, stakeholder participation, supervision and regulation, consistency and stability, and transparency and information.
Coherent decision-making structures enable those responsible for particular decisions to also be endowed with the discretion, authority, tools and resources necessary to fulfill their responsibilities; and if they face consequences for their decisions that align their interests with that of the overall good performance of the system.
Stakeholder participation is rooted in the premise that stakeholder views are integral to meaningful governance and should be incorporated during the process of decision-making.
Transparency and information assures that information is available to those who can make decisions – whether financial regulators making sure that insurers have adequate funds to fulfill their obligations, beneficiaries seeking redress for improper treatment, or the general public pressuring governmental authorities to prosecute misconduct. This entails supporting the rule of law, which requires that regulatory authority is legitimately exercised only in accordance with written, publicly disclosed laws adopted and enforced in accordance with established procedure.
Supervision and regulation are another dimension of governance that can hold insurers accountable for their performance. Accountability differs from transparency because it involves consequences – reward or sanction – for the performance of the health insurance funds.
Consistency and stability help to avoid uncertainty around rule-making and enforcement through time and through periods of political change. If regulations are consistent then people and institutions can make long-term decisions with the assurance that the rules will not change or, at least, will not change arbitrarily. Accountability assures that Mandatory Health Insurance institutions are answerable and responsible for their actions.
The governance dimensions enumerated here require greater specificity if they are to be measured and used to assess systems. Chapter 2 describes a set of features that can sustain dimensions of good governance for mandatory health insurance systems by establishing conditions for effective stewardship, oversight and administration (See Table ES.3).
Table ES.3: Dimensions, features and indicators of good governance in MHI
| Dimensions | Features | Indicators |
| Coherent decision-making structures | 1. Responsibility for MHI objectives must correspond with decision-power and capacity in each institution involved in the management of the system. | Yes/No Examples: · The institution responsible for the financial sustainability of the system must be able to change at least one of the parameters on which it depends (e.g. conditions of affiliation, contribution rate, benefits package, ability to act a strategic purchaser, tariffs etc.). · The institution in charge of the supervision of sickness funds has the capacity to fulfill its responsibilities (i.e. it has enough skill staff, it has access to the necessary information, and legal texts give it the authority to play its role towards sickness funds). |
| | 2. All MHI entities have routine risk assessment and management strategies in place. | Yes/No Example: · Clear regulations on MHI entities’ continuous risk assessment and risk management are in place. · Strategies are in place, i.e. MHI entities follow and analyze the evolution of expenditure and the evolution of contributions. · MHI entities have the capacity to manage risks, i.e. take corrective action in order to ensure the financial sustainability of the system by modifying some of the parameters influencing it (contribution rate, composition of the benefits package etc.). |
| | 3. The cost of regulating and administering MHI institutions is reasonable and appropriate. | Yes/No Example: · Max. administration costs for MHI entities are set in the legal text or regulations. · Admin. costs are monitored by the regulator. · Provisions for covering the costs of the MHI regulator are stipulated in the legal text. · Before new regulations are put in place a cost-benefit assessment is conducted. |
| Stakeholder participation | 4. Stakeholders have effective representation in the governing bodies of MHI entities. | Yes/No Examples: · Governing bodies of regulatory oversight and institutional governance (BoD, oversight body) have representatives of Government agencies, regulatory bodies, MHI entities, unions, employer’s organizations, beneficiaries, providers and independent experts. · Representation is effective, i.e. different stakeholders views are considered in the decision-making. |
| Transparency and Information | 5. The objectives of MHI are formally and clearly defined. | Yes/No Examples: · Objectives are stated in a high-level legal text (e.g. Constitution or law). · Objectives are publicized and easily accessible to the public. · Objectives are clearly defined and easily understandable. |
| | 6. MHI relies upon an explicit and an appropriately designed institutional and legal framework. | Yes/No Examples: · Main characteristics of the system are defined in legal texts (coverage, benefit package, financing, provision, regulatory oversight, and institutional governance) · The framework is appropriate given the country MHI context (i.e. it is not too restrictive, considers special local circumstances and is not ignoring important parts/players of the system). · The status and responsibilities of each different MHI institutions in the system are clearly defined and transparent. |
| | 7. Clear information, disclosure and transparency rules are in place. | Yes/No Examples: · Explicit disclosure regulations exist in the law or regulations of the law. · Business activities, ownership and financial positions are regularly disclosed (i.e. the rules are followed). · Beneficiaries have access to the financial information of sickness funds |
| | 8. MHI entities have minimum requirements in regard to protecting the insured | Yes/No Examples: · Consumer protection regulations exist in the law, including, consumer information duty, complaint, appeal, grievance and independent dispute resolution mechanisms. · Insurees can obtain timely, complete and relevant information changes in benefits or premium, changes in coverage length etc. · Consumer complaint mechanisms exist and are being used. · Appeals and grievance mechanisms exist and are being used. · Independent dispute resolution mechanisms exist and are being used. |
| Supervision and regulation | 9. Rules on compliance, enforcement and sanctions for MHI supervision are clearly defined. | Yes/No Examples: · Rules on compliance and sanctions are defined in a legal text. · Corrective actions are imposed, based on clear and objective criteria that are publicly disclosed. · Adequate capacity for the execution of these functions is provided. · Cases of rule violation and subsequent actions by the regulator are publicized. |
| | 10. Financial management rules for MHI entities are clearly defined and enforced. | Yes/No Examples: · Financial standards for MHI entities are defined in legal text or regulations. · Clear financial licensure/market entry rules are defined (minimum capital requirements). · Ongoing reserve and solvency requirements are defined. · Regulations of assets and financial investments are defined. · Audit (internal and external) rules are defined. · Rules for financial standards are enforced. |
| | 11. The MHI system has structures for on-going supervision and monitoring in place. | Yes/No Examples: · Clear non-financial licensure/market entry rules are defined. · Insurance product filing/registration is defined and regulated. · Adequate on-site inspections and off-site monitoring is in place. · Ongoing financial reporting rules are defined and provided information is accurate and timely. · Clear market exit/dissolution rules are in place. |
| Consistency and stability | 12. The main qualities of the MHI system are stable | Yes/No Examples: · Objectives remained substantially the same in the near past. · Fundamental characteristics of the MHI system (e.g. benefit package, rules for affiliation, contribution requirements, basic insurees protection rights and basic institutional requirements for operators) are defined in a law. · The law remained substantially the same in the near past (i.e. independent of political elections or economic crises). |
Each of these features can be measured by an associated indicator to evaluate the degree of conformity with these features of good governance. Applying these to the four case studies demonstrates an effective diagnostic tool for guiding policymakers who want to improve the governance of their systems.
Case Studies
The first thing to note about all four cases is that they perform reasonably well in terms of insurance coverage, access to health care services, population health, and financial protection relative to other countries in the world. On the other hand, complaints are aired in the media and legislatures about rising costs (in all four countries, despite widely different levels of spending), waiting lists (particularly in Estonia and the Netherlands), absenteeism & evasion (particularly in Costa Rica), and health care quality and equity (particularly in Chile).
The results of applying the previously discussed indicators associated with the five governance mechanisms — coherent decision-making structures; stakeholder participation; supervision and regulation; consistency and stability; and transparency and information – reveal that the dimensions vary substantially across the cases.
All four countries perform well with regard to Consistency and Stability, which is found in all four cases, sometimes as a consequence of political deadlocks that resist change. Nevertheless, open democratic processes and debates have allowed each one to introduce changes in response to perceived problems without undermining the basic credibility of the system’s structure and rules.
Each also performs well on the dimension of Stakeholder Participation, which also varies substantially. The highest decision-making authorities within Costa Rica’s CCSS and Estonia’s EHIF are supervisory boards whose members are selected to represent the interests of organized groups; the Sickness Funds in the Netherlands also have independent directors serving on supervisory boards; while Chile’s national insurance fund responds directly to the President.
The dimension of Regulation and Supervision had the widest dispersion of performance. In all cases, the mandatory health insurance system involves a mix of legislative, executive and independent agencies, and insurers are subject to both internal and external financial audits. But other features vary considerably: the Dutch regulatory authorities are semi-autonomous entities while the others are more directly managed by their respective governments; private insurers are subject to private sector regulations (e.g. labor codes, financial reporting) while the public insurers are supervised by ministries and legislatures.
Coherent Decision-Making Structures was the weakest dimension for all countries. These are characterized by public (FONASA and the CCSS) and private ownership (ISAPRES) and by centralized (EHIF) and decentralized management (Dutch Sickness Funds). At one extreme, the private insurance funds in
Surprisingly the dimension of Transparency and Information performed relatively low. Many MHI beneficiaries still have limited information regarding their entitlements and rights and while consumer protection rules exist in most countries, MHI systems did not instill a culture of exercising the right to consumer complaints as it is common in private systems. Nevertheless, issues related to conflicts of interest and consumer protection are of increasing concern, accompanied by efforts to simplify and standardize information for public dissemination and to widen the range of performance indicators to include measures of health care service quality.
Regarding the context of the insurance system, competition is an indirect way of holding insurance funds accountable in the sense of creating incentives and pressures to perform well. In the cases here,
Lessons and Trends
Which forms of governance encourage the best performance by Mandatory Health Insurers? These cases demonstrate that the effectiveness of particular governance mechanisms will vary in relation to a number of contextual factors – such as the presence of competition, the organization of civil society, relationships between insurers and providers, the effectiveness of political processes and enforcement of laws. This suggests that the search for better governance mechanisms has to pay more attention to how well the proposed mechanisms “fit” the structure of the health insurance system and its context.
Therefore, the lessons drawn from this study cannot be applied to low-income countries today without a number of qualifications. First, the cases presented here are only a small subset of relevant experiences. Second, the countries discussed here all established mandatory health insurance funds when they had much higher income levels and degrees of economic formalization than is the case in today’s low-income countries. Third, these countries are all economically and politically stable, with relatively effective governments, low corruption, and skilled workforces.
Two dimensions, in particular, appear to condition how governance will affect the performance of mandatory health insurance – the number of insurers and the relationship between insurers and providers. In countries with multiple and competing insurers, external oversight mechanisms can pay less attention to efficiency and management, and focus more on consumer protection, inclusiveness, and preserving competition through anti-trust actions. By contrast, countries with a single health insurer need external oversight mechanisms that make the insurer accountable for integrity, quality and productivity.
In addition, the relationship between insurers and providers influences the impact of different governance mechanisms. In some countries, the relationship between providers and insurers is openly antagonistic; while in others, it is more collaborative. The presence of providers’ representatives on the decision-making bodies of health insurers or regulatory agencies will have different implications under these varied scenarios. In addition, where providers are direct employees of insurers, the character of negotiations and oversight needs to confront issues that arise in civil service codes or labor legislation; while countries where providers are independent of insurers need governance mechanisms that promote transparent and productive negotiations over prices and payment mechanisms.
Coherent Decision-Making Structures;
Ownership and Legal Status
The four case studies demonstrate that mandatory health insurers can function reasonably well as parts of the executive branch (as in Chile), as autonomous public institutions (as in Estonia and Costa Rica), and as non-profit private entities (as in the Netherlands). If a country has a well-functioning public sector, direct public administration might be the best option. Where the public sector is less effective, autonomous public institutions could be considered, with special attention to assure accountability, avoid capture by special interests, and ensure effective tools for managing personnel.
Defining Roles and Responsibilities
Many different allocations of decision-making powers can function well, but responsibility for making decisions has to be matched with appropriate authority, resources, and managerial discretion. Given the political sensitivity of health insurance, governments are often tempted to intervene in a wide range of financial and managerial decisions. Managing this tendency for undue interference is likely to work better when the respective responsibilities of the government and the insurance schemes are distinct and clear; when independent authorities (e.g. courts) can effectively enforce that division of responsibilities, and when each actor has authority and discretion over those decisions for which it is held accountable.
Stakeholder Participation;
Representation on Supervisory Boards
The initial approach to mandatory health insurance in
Transparency and Information
In every country, the number of reports, monitoring agencies, and indicators has increased substantially. This trend appears to be motivated both by a desire to tighten accountability of health insurers and to widen the scope of performance measures. This requires that mandatory health insurers have internal information systems for guiding managerial decisions related to performance; internal audit units; external audits; regular reports to important stakeholders like legislative bodies, financial markets, and the public.
To be effective, required reports and audits are designed to collect information that is useful to someone and that can be acted upon.
Supervision and Regulation;
Unifying Supervision
Unifying supervision for all health insurers – whether public or private, integrated with providers or not – is apparently the best way to assure fairness and efficiency in terms of financial solvency, consumer protection, and equity.
Conflicts of Interest
In all of the cases discussed here, conflicts of interest were a matter of concern, but one that is still in the process of being addressed. Countries that are creating or reforming mandatory health insurance should use such an opportunity as a way to introduce measures to address conflicts of interest as soon as possible.
Financial supervision
Health Insurers are, fundamentally, financial institutions and unless they operate according to sound financial principles, they cannot remain solvent or function well. Appropriate financial supervision requires the government to establish minimum capital requirements and reserves, adequate internal controls, external auditing, and timely financial reports to regulatory authorities.
Health Care Quality Supervision
Unlike other financial institutions, health insurers sign contracts that commit them to paying for a service whose quality is not easily monitored or guaranteed. For health insurance to be effective, beneficiaries must be able to reach health care providers in a timely fashion and receive appropriate diagnosis and treatment. Countries need to have mechanisms in place to directly supervise health care providers regarding the quality of services and to verify that health insurers can fulfill their contractual obligations by having negotiated contracts or established payment mechanisms with an adequate number of health care providers in the geographical regions that they serve.
Consumer Protection
The preceding elements of supervision are part of protecting consumers. Good financial supervision reduces the chances that a consumer’s insurer will go bankrupt at a time when they require services. Good health care quality supervision increases the likelihood that a consumer will get the services they need when they are injured or fall ill. Beyond these, countries have implemented a number of measures to assure that consumers have a better understanding of their insurance coverage and responsibilities, that insurers provide good service other than medical care (e.g. timeliness and accuracy of payments), and that consumers have ways to pursue their grievances when all else fails.
Consistency and Stability;
Establishing an open and respected process for changing rules and abiding by them in the early years of a new system also helps establish a reputation for consistency and stability.
When the government has strong credibility, public decision structures for health insurers, written into legislation or even the constitution, may be the best way of establishing a consistent and stable system. If the government lacks such credibility, autonomous structures, protected by constitutional provisions or anchored in the private sector, may work better.
Additionally, stability can be achieved in a variety of circumstances. When political debates demonstrate broad agreement and support for the health insurance system, legislation and regulatory actions can articulate and implement that consensus. But even in cases where the system is the object of fierce political debates, stability can be achieved by maintaining the deadlock (assuming of course that the current structure is adequate and important changes are not needed).
Clear rules that are judiciously and reliably enforced are the best way for a country to assure consistency and stability for its mandatory health insurance system. Given that circumstances will change over time, clear procedures for modifying those rules are also needed – preferably tailored to the degree of flexibility required.
Competition
Consolidation of Insurers
The advantages of scale, simplicity, and equity that come from having fewer insurers are quite strong, and countries that are considering health insurance reforms would be well advised to consider whether consolidation can and should be encouraged.
Structuring Competition
Where countries have a commitment to competition in health insurance markets, they have come to realize that the health insurance market needs to be structured if normal market mechanisms are going to function well.
Payer-Provider Relationship
It is extremely difficult to find specific lessons in this regard except to emphasize the importance of this contextual feature. Countries that are designing governance for their mandatory health insurance systems need to consider the strength and form of health care provider organization and take it into account. This is particularly true for choices regarding stakeholder participation because even without representation on supervisory boards, providers may exert influence in other ways – either politically or by popular appeals.
When designing the governance structures, countries would be well advised to examine their own experience with labor relations in both the private and public sector and look for examples which have been more collaborative than controversial. Using those examples, and examining the current way that providers are organized and relate to insurers may generate ideas for channeling the legitimate interests of insurers and providers in productive directions.
Remaining Questions for Research
How can countries assure solvency and balanced budgets?
The health insurers studied here have all maintained solvency and balanced budgets, but the causes are not clear. For example,
How can countries assure financial protection for the population?
All of the countries studied here have achieved universal coverage for their populations with a relatively comprehensive set of health services. However, in many low- and middle-income countries, mandatory health insurance has not expanded beyond a small subset of the population or provides only limited benefits. Countries that are creating or reforming mandatory health insurance need to consider the strategy for reaching universal coverage. Will they create specific insurance funds for different population segments and then try to unify them, as has occurred in the
How can countries promote efficiency and raise productivity?
Health care costs will continue to rise as populations become wealthier and demand more services, and as health care technology advances and offers more services and products. None of the approaches to governance of mandatory health insurance presented here will guarantee that insurers focus on improving efficiency and productivity. Yet every country has been concerned with increasing efficiency and productivity as part of its reform efforts. This is another area in which countries creating or reforming mandatory health insurance will have to draw from other countries experiences, reflect on their own conditions, and experiment with new approaches.
Chapter 1
Governing Mandatory Health Insurance: Concepts, Framework, and Cases
By William D. Savedoff[1]
"It may be a reflection on human nature, that such devices should be necessary to control the abuses of government. But what is government itself, but the greatest of all reflections on human nature? If men were angels, no government would be necessary. If angels were to govern men, neither external nor internal controls on government would be necessary. In framing a government which is to be administered by men over men, the great difficulty lies in this: you must first enable the government to control the governed; and in the next place oblige it to control itself."
James Madison, Federalist Papers, No. 51.1788.
1. Introduction
Mandatory health insurance systems have been established in more than 60 countries, beginning with
This monograph seeks to provide guidance to countries that want to reform or establish mandatory health insurance with regard to the institutional structures and forms of governance that are most likely to succeed. It specifically aims to identify key differences in how mandatory health insurance systems are governed and cull lessons from the experiences of a wide range of countries. By describing governance arrangements in greater detail and making the effort to develop institutional variables that can be compared across different countries, these studies also contribute to the applied research literature that, if successful, will ultimately link different institutional forms to better and worse performance.
This chapter provides an overview for the subsequent analyses of specific cases. It begins by putting mandatory health insurance into its historical context, by defining key concepts (namely, Social Health Insurance, Mandatory Health Insurance and Governance) and by presenting a framework for analysis. The second half of the chapter uses this analytical framework to assess the cases presented subsequently – with specific sections on the detailed research on Costa Rica, Chile, Estonia, the Netherlands, and the broader data collected on countries like South Korea, Taiwan and Colombia.
It should be noted that this monograph is not addressing the overall merits of mandatory health insurance. In fact, at the same time that many developing countries are trying to adopt mandatory health insurance systems, countries with long experience – such as
2. Overview and trends
Mandatory Health Insurance (MHI) is not a simple market or government service for several reasons. First, it is a service strongly affected by problems associated with insurance markets (e.g. adverse selection, moral hazard) and with asymmetric information (e.g. suppliers can “tell” consumers what to buy and normal checks through reputation are ineffective due to infrequent “purchases” and uncertainty over quality). As a result of these features, societies find it very difficult to provide these services efficiently in a way that satisfies all stakeholders.
Second, MHI is a service that has very high visibility (Voices of the Poor) and, partly in consequence, it plays a central role in national political debates and institutional development. Therefore, it is difficult to analyze MHI without an appreciation for the broader social movements that have shaped it. This section will provide an overview of how MHI evolved and discuss how it is being debated in developing countries today.
The emergence of mandatory health insurance in two regions
Two regions – Western Europe and
By the middle of the 19th century, most Western European countries had numerous associations offering health insurance, with a wide mix of affiliation rules – some on the basis of occupation, others on place of employment, place of residence, or even ethnicity. For example, by 1885
The transformation of these voluntary associations into broad national health insurance systems was driven by the political context, involving struggles between employers, labor groups and the State. The 19th century process of industrialization transformed European societies and included the growth of organized labor as an important political actor. This threatened political elites who responded in many cases by pursuing “corporatist” policies – that is, political elites sought to channel labor demands through formal associations that would preserve existing power and privileges in return for certain concessions, such as shorter work weeks, unemployment insurance, pensions, and health benefits (Saltman 2004).
This dynamic was central to the creation of
Different countries followed parallel paths, with mandatory health insurance emerging as the dominant model in
In the years following World War II, countries such as
Latin American countries began to debate and enact mandatory health insurance systems contemporaneously with Western European developments. However, they did so without the comparable development of voluntary associations, in large part because European conquest and colonial rule had effectively destroyed or marginalized indigenous risk-sharing institutions where they existed. In some countries, notably
As Latin American States consolidated at the end of the 19th century, many sought to preserve elite power through adopting Western European political approaches, establishing “corporatist” relations between workers and employers and the State. As part of these political developments, public and formal sector workers were incorporated into social insurance systems. Where previous organizations existed, these tended to take on plural forms – as in
In contrast to
The experiences of Western Europe and
Mandatory health insurance varies considerably around the world
The range represented by Western Europe and
Countries also vary in the number of insurers they have. Some countries have a single fund (e.g.
Beneficiaries are assigned to insurers in many different ways. Sometimes beneficiaries are assigned to funds on the basis of their employment (e.g.
Competition is a formal and explicit part of MHI systems in a significant number of countries, including
MHI systems also face de facto competition from private voluntary insurers (both for-profit and non-profit) that may or may not fall under the regulatory authority of the state. When individuals or employers purchase private voluntary coverage, it may indicate the low quality of services or benefits provided by MHI schemes. This is the origin of the so-called “doble afiliación” (double affiliation) that is common in many Latin American countries (e.g. the
MHI schemes often rely on external providers (public or private) for the provision of services to their members. This is the norm in
The oldest and most mature social insurance funds of Western Europe and
Are existing models relevant?
Pressures to adopt mandatory health insurance today appear to be driven by a very different political dynamic than the one that drove events in Western Europe and
When low- and middle-income countries propose to adopt or reform MHI systems, the most common goals are to (see, for example, International Labour Office 2001):
· mobilize funds for health care expenditures – introducing a new “tax”
· improve insurance – eliminating barriers to utilizing health care services and protecting households against incurring large medical expenditures
· improve equity – redistributing income and/or assuring equitable access to medical services.
· build democratic and participatory institutions – fomenting solidarity and social cohesion; empowering citizens; strengthening civil society organizations.
A priori, it is not clear why MHI would be the best way to address these goals (Savedoff, 2004; Wagstaff 2007). Payroll taxes are not necessarily the most efficient to raise funds for the health system, nor is it clear whether MHI systems do a better or worse job of protecting citizens against medical care expenditures (Xu et al 2003). Improving equity and building democratic participation can also be fostered by many different forms of civic and social association.
When reasons are given for introducing or expanding MHI, they generally focus on three features: giving contributors a clear stake in the health insurance system, protecting health care expenditures by earmarking funds, and increasing efficiency through competition. Each of these, in turn, should be subjected to empirical analysis to determine whether they hold true, particularly under existing conditions in developing countries.
Given the different political and historical contexts, it is an open question whether or not these public policy goals can be reached through mandatory health insurance. First, some countries have supportive economic conditions, with rapid growth and increasing formalization of the labor market, while others are experiencing economic stagnation and the continued presence of large informal sectors. Secondly, some countries have more propitious institutional contexts than others, particularly in terms of effective governments and prior experience with voluntary health insurance. Third, the demands for health care are much greater and more costly than they were only a few decades ago. Taking lessons from Western Europe and
Some governments have already taken or will take this path. In these cases, they need to decide how new health insurance entities will be governed and in this regard existing MHI systems provide many lessons. Countries with MHI systems have generated a wide variety of structures for governing mandatory health insurance entities and these should be instructive in designing governance structures for new reforms.
3. Definitions: Mandatory Health Insurance and Governance
Mandatory health insurance takes many different forms and is understood differently around the world. Therefore, developing testable hypotheses about the governance of mandatory health insurers requires a clear delineation of these different forms as well as models of how they behave. This section briefly addresses the definition of mandatory health insurance and explores at greater length a wide range of definitions for the associated concept of “social health insurance”.
Defining Mandatory Health Insurance and Social Health Insurance
The definition of mandatory health insurance (MHI) is quite simple: it is a system that pays the costs of health care for those who are enrolled and in which enrollment is required for all members of a population. It is quite distinct from systems in which health insurance is largely voluntary and those in which out-of-pocket payments predominate. It is a little more difficult to distinguish MHI systems from those in which government services are provided at little or no cost to the population (e.g. the National Health Service of Britain or Malaysia), except that in MHI systems the insurance function is generally explicit and provision is often separated from financing.
As a category, MHI includes most forms of “Social Health Insurance” (SHI) – a term that is used in a variety of contexts to mean quite different things. The term is most closely associated with Western European countries whose insurance coverage is modeled on the system established by
Definitions for Social Health Insurance tend to fall along a spectrum between viewing it as (1) a mechanism for insuring the population against the risks of incurring medical expenses; or (2) as an institution that plays a wide range of social roles. Those who conceive of SHI more narrowly tend to view it as an instrument for achieving specific goals – universal financial protection and access to health care services. To the degree they are concerned about the basis of affiliation, they are oriented toward finding a system of affiliation that maximizes the likelihood of achieving universal coverage. In this perspective, accountability and governance mechanisms are evaluated in terms of how effectively insurers fulfill their mandates to provide financial protection and access to health services for their members.
For those who see SHI as more of a social process embedded in broader institutions, financial protection and health care service access are only part of the institutions’ goals. The operation of the SHI system is itself seen as a mechanism for linking social benefits into a network that fosters solidarity, builds civic associations, and empowers citizens through participation. This view is particularly prevalent in
These different perspectives are implicit in the characteristics ascribed to SHI. For example, the more instrumental version can view the form of affiliation, the basis for contributions and the separation of providers and payers as policy choices rather than defining characteristics. On the other hand, a socially-embedded view may see affiliation by employment (and consequently a role for intermediating labor representatives), income-based contributions, and separation of providers and payers as core defining features.
One study identified the following structural characteristics of SHI systems in
· Risk-independent and transparent contributions
· Sickness funds are payers/purchasers (not direct providers)
· Universal coverage based on “solidarity”
· Plural actors
· A corporatist model of negotiating premiums, payments and benefits
· Participation by citizens and beneficiaries in shared governance arrangements
· Individual choice of providers
Western European countries with MHI exhibit some variation within each of these dimensions. For example, beneficiaries elect directors in most countries, but not in
The problem with relying on these characteristics to define SHI is that they are not present, as a package, in most other countries in the world that adopt systems that are denoted “social health insurance”. For example, social health insurance systems in
The OECD has made efforts to clarify the distinction between SHI and other kinds of health system. In the guidelines for National Health Accounts, the source of funds – payroll tax – is the first defining characteristics (OECD 2000). However, this leads to some rather problematic terms such as “private social insurance” – that is, cases in which mandatory health insurance financed with payroll taxes is implemented by private insurance agencies (e.g.
If instead, we follow the OECD’s lead in recognizing that most systems are “mixed” and that public and private entities can play different roles in the same system, then we can take advantage of the strong and clear distinction between mandatory and voluntary insurance (See Figure 1.1). This OECD framework divides mandatory insurance schemes into three categories: tax based, social security and private insurers. This paper focuses on the latter two subcategories of mandatory health insurance (“social security” and “private mandatory insurance”) because these are the two categories that are generally presented as options within current “social health insurance” debates (OECD 2004b).
Rather than arguing over the correct terms or definitions, it would be wise to learn from policy actors which kind of scheme they are proposing and advise them on the basis of a shared definition. The different perspectives on mandatory health insurance – an instrumental view and a socially embedded view – will be associated to some extent with the level of performance measures and the scope of policy levers. It also has implications for which models will be most relevant as will be discussed below.
What is Governance?
As with social health insurance, the meaning of “governance” varies substantially across contexts and researchers. Broad definitions of governance attempt to encompass all of the relevant factors that influence the behavior of an organization. For mandatory health insurance entities, these factors would include its relationship to the government, its members, any other payers (e.g. employers), health care providers, and other insurers (e.g. competitors). Narrower definitions of governance look specifically at the “control” mechanisms that are used to hold the entity accountable. These latter definitions are more concerned with such issues as the mechanisms by which Board Members are elected, the scope and style of government supervision and the scope of managerial discretion in defining benefits, contribution rates, and negotiating contracts.
The existing literature on mandatory health insurance systems addresses governance indirectly to the extent that it considers the pros and cons of affiliation rules, single or plural funds, alternative payment mechanisms, and options for defining benefits and contribution rates (Consider for example, Normand & Weber 1994, Eichler & Lewis n.d., Carrin & James 2004). To the extent that the existing literature explicitly examines governance, it tends to be fairly general. For example, Chinitz et al 2004 contrast structured negotiations, market competition and technocratic planning as mechanisms that are relied upon to govern social health insurance in
The literature on governance in related fields is much more advanced. The literature on governance of private corporations is perhaps the most extensive, having played a role in the advances in principle-agency models and in testing theories on the role of transaction costs (Meckling 1976, Williamson 1999). Principal-Agent models focus on the divergence of interests between the Principal and the Agent under conditions of asymmetrical information (in particular, the Principal can not directly monitor all of the agent’s actions without cost), and emphasize the value of aligning incentives and distributing risk so as to achieve mutually efficient contracts. Transaction cost models emphasize that individuals behave under bounded rationality and with opportunism, and therefore “. . . governance is the means by which order is accomplished in a relation in which potential conflict threatens to undo or upset opportunities to realize mutual gains.” (Williamson 1996, p. 12, author’s emphasis).
This literature has shown how features of corporate governance alter the comportment of managers in ways that affect their business’ performance. These features include: whether a company is publicly traded or privately held, whether managers own significant shares of stock, whether shareholding is widespread or concentrated, whether board membership includes disinterested individuals, whether managers’ pay is linked to performance incentives, and systems for electing Board Members, among others.
Public policymakers have entered the debate because the legal form of corporations is itself a creation of public policy and because there is a public interest in assuring integrity in corporate management. Managers of corporations have discretion so that they can innovate and make decisions flexibly in the interest of improving share value and income; however, this discretion can be abused (sometimes spectacularly as in the recent scandals at Enron and WorldCom). The public debate over governance of corporations, therefore, seeks ways to assure that shareholders and employees are protected without interfering excessively in managerial discretion. There is no single answer to reaching this delicate balance, and whatever rules are laid down must be coherent with the broader structure of the legal and financial systems.
This focus on corporate governance has been operationalized in many settings, including in the international sphere, where the OECD has established principles for governance of private corporations. The OECD defines corporate governance thus:
Corporate governance involves a set of relationships between a company’s management, its board, its shareholders and other stakeholders. Corporate governance also provides the structure through which the objectives of the company are set, and the means of attaining those objectives and monitoring performance are determined. Good corporate governance should provide proper incentives for the board and management to pursue objectives that are in the interests of the company and its shareholders and should facilitate effective monitoring.[4]
These international prescriptions are necessarily general. They take on greater specificity when implemented in particular countries (see, for example, Commonwealth of Australia 2003).
The governance of public agencies has many common features with that of private firms. Most of the issues related to balancing discretion with tighter oversight play out in the public sphere as well. But governing public agencies has, in addition, many unique features. A sizable literature has developed on different aspects of governing public agencies, including the identification of problems associated with “capture”, multiple principles, and vested interests.
Capture occurs when a public agency, whose mandate is to serve the public in a particular way acts, instead, to further the economic or political interests of a regulated entity.[5] At one extreme are police departments that are corrupted by organized crime and become accomplices in criminal activities. But capture can occur without blatant forms of bribery. The people who are hired to run and manage environmental protection, food safety, or transportation agencies often share similar training and perspectives with those who work in the regulated industry. This may lead them to be more lenient in applying laws than might otherwise be the case.
Capture can occur in MHI systems in several different ways. Health insurers can be “captured” by providers – acting to protect the incomes and jobs of health care professionals over the interests of beneficiaries. In systems with multiple insurers regulated by the government, the supervisory agency itself can be “captured” – acting in ways that benefit the health insurance agencies as against the interests of beneficiaries. The risk of “capture” is lower when decisions are more formulaic, regulators have less discretion, information regarding decision-making is publicly accessible, wage scales are comparable to that of the industry being regulated, and where restrictions on gifts and on taking jobs with the regulated industry after public service are observed (Ferreiro and Sierra 2001). However, there are tradeoffs that need to be recognized in enacting any of these measures; for example, less discretion can lead to inflexible and inefficient rulings and restrictions on employment in the industry can reduce the pool of applicants to individuals who are not as skilled or knowledgeable about the regulated entities.
Other issues arise when public agencies have more than one mandate and/or are accountable to more than one body. This is analyzed as a Principal-Agent problem with multiple principals (see, for example, Spiller 1990 and Spiller & Urbiztondo 1994). For example, some politicians may be more concerned with protecting the interests of a particular industry that causes pollution while others are more concerned with constituents who value a cleaner environment. In this context, the resulting struggle to influence the behavior of an industry regulator may go beyond a debate over particular measures or regulations to affect decisions over the character of the regulatory agency – with some politicians seeking to protect the regulator from short-term influences and others seeking to subject the regulator to tighter controls. The existence of multiple principals also has implications for the amount and costs of oversight and auditing.
Mandatory health insurance faces similar problems because it is usually structured to serve many masters. It is given the mandate of financially protecting its members from the costs of medical care, but in order to accomplish this, it must satisfy medical care providers’ demands for adequate payments and income levels, public demands for lower premiums and solvency, and political pressures to privilege particular constituents – whether defined by geography, class or illness. In many cases, health care is itself only one of many services that are being provided by the agency. For example, in
Finally, public agencies themselves can develop vested interests, diverting resources toward activities and purchases that preserve their jobs or enhance their incomes or powers. This may be manifested in bloated administrative expenditures, excessive spending on real estate, or investment decisions biased toward capital or high technology equipment. A variety of mechanisms are often introduced to control such tendencies, e.g. establishing a maximum share of revenues can be spent on administration; however, most efforts at establishing rules can be bypassed through clever accounting or business practices and there is no ultimate guarantee other than through greater transparency and more intelligent oversight. This is a further demonstration of the tradeoffs involved in overseeing public agencies because more rule bound and detailed oversight can interfere with the need for flexible and intelligent responses to changing circumstances.
Pension funds are an example of a public agency that shares some characteristics with MHI systems. They are often established as public services or mandatory private funds and have been extensively debated in recent years with regard to whether these systems should be fully funded or pay-as-you-go. But a number of articles also analyze how pension systems are governed, utilizing principal-agent and transaction cost models. For example, one study statistically tested the impact of various governance arrangements on pension fund performance (defined as rates of return on assets and solvency). They find that retiree representation on boards actually reduces returns on assets held by public pension funds in the
As noted above, the literature on governance of MHI is quite limited. However, the literature on governance more generally is quite rich. It demonstrates the need for attention to ownership, selection of board members, and managerial incentives, as in the literature on private corporate governance, and importance of capture, responses to multiple principals, and the emergence of vested interests in the literature on public governance. It illustrates the tradeoffs that emerge in determining the level of independence and discretion afforded to agencies. Finally, it shows the importance of publicly accessible information to proper oversight and the roles that can be played by different stakeholders, depending on how oversight is structured.
4. An Analytical Framework
Numerous frameworks are available for analyzing mandatory health insurance from the broader literature on health systems and health system performance. Many of these studies present frameworks based on functional schemes (e.g. Kutzin 2001 and WHO 2000). Others have used the flow of funds through a health system as the organizing principle for analysis (e.g. La Forgia 1994 and Magnoli 2001). Still others emphasize relationships among stakeholders, including government, insurers, providers and beneficiaries (e.g. Preker and Harding 2000; Mossialos et al 2002; World Bank 2004). This framework will follow the latter approach since it is more appropriate for analyzing questions dealing with governance.
Consider Figure 1.2 in which three major relationships are highlighted. The insurance entity is accountable to certain agents – generally beneficiaries, governments and other non-beneficiary contributors such as employers. The entity is also in competition with other agents – either formally as in systems with multiple sickness funds or informally with other organizations that people use to insure against the costs of medical care.[6] Finally, the entity has a very important relationship in how it pays for provision of care – whether through direct hiring and provision, fee-for-service contracts, capitation or some combination thereof.
In what follows, attention will be focused on the accountability of insurers to beneficiaries, government and contributors, which draws attention to a number of governance dimensions, in particular: coherent decision-making structures; stakeholder participation; supervision and regulation; consistency and stability; and transparency and information (See Figure 1.3 in the annexes of chapters 3-6). These five governance dimensions operate within a context made of relationships to competitors and providers. This context will be summarized by grouping countries into four broad models distilled from the range of experiences observed in countries with mandatory health insurance systems.
Governance Dimensions
Many different forms of governance are available to influence the accountability relationships between insurers and their various stakeholders. In the case of private corporations, the governance structure tends to create reasonably direct and separable accountability relationships. A corporation’s management is accountable to its shareholders through their selection of Board Members and decisions with regard to selling or buying equity. It is also accountable to society through governmental regulation of acceptable environmental, labor, and market behaviors. And its customers hold it accountable with their decisions regarding purchases.
The governance of MHI organizations can be analyzed in terms of similar dimensions, but the actual mechanisms tend to be less direct and overlapping. So, for example, the Insurer may have Board members representing beneficiaries, employers and government agencies at the same time that it is subjected to governmental supervision and regulations, pressured by beneficiaries who may exercise their options to select another fund, as well as negotiating with provider associations on terms of payment and quality of care.
There is no obvious way to frame the governance dimensions needed to achieve accountability, although the general rules are fairly simple: align incentives and make information available and transparent. Many different schemes can be proposed for organizing the analysis, highlighting different dimensions. In this book, we propose the following list: [7]
- Coherent decision-making structures;
- Stakeholder participation;
- Transparency and information
- Supervision and regulation; and
- Consistency and stability;
Coherent Decision-Making Structures are required for an insurer to perform well. This does not mean that decisions should be centralized or decentralized because in a system as complex as mandatory health insurance, decisions will necessarily be made in many different places – distributed both hierarchically and spatially. Rather, decision-making structures are coherent if those responsible for particular decisions are also endowed with the discretion, authority, tools and resources necessary to fulfill their responsibilities; and if they face consequences for their decisions that align their interests with that of the overall good performance of the system.
This fundamental distribution of decision-making authority and resources is generally supported by an explicit legal foundation that establishes the objectives of the system, the roles and responsibilities of different actors (e.g. government, boards, and management), the rights and obligations of the affiliated population, basic checks and balances, and procedures for amending the law. To be complete this legal foundation needs to include provisions to implement and supervise the system by administrative action and regulation, guided to the extent possible by criteria aligned with the system’s objectives.
Two particular elements of the governance structure have implications for the way the rest of the system is structured and performs: ownership and legal status. Ownership is most clearly defined in terms of who has claim to any residual assets of the entity if it were to be dissolved. In private firms, this residual claim is in the hands of shareholders. In publicly owned agencies, this residual claim is in the hands of the government. Mandatory health insurers can be configured either way, but are more commonly owned in more complex, even hybrid, ways – with ownership commonly shared among some combination of employers, employees, beneficiaries, providers and the government. Residual claims are important because they create a strong incentive for the owner to act in ways that will preserve the value of the institution and improve efficiency. When ownership is concentrated, these incentives are expected to work more strongly than when ownership is diffuse. In certain contexts, the government may hold an implicit responsibility for keeping the insurer solvent, creating a situation of moral hazard and leading it to subsidize deficits rather than allowing the insurer to fail. In these cases, the incentives for owners to operate the insurer efficiently are weakened. Although these expectations derive clearly from theoretical models and can be observed anecdotally, few of them have been be subjected to rigorous empirical testing.
The legal status of a mandatory health insurer affects the decision-making structure because it generally establishes boundaries to what the insurer can and cannot do. For example, its legal status will determine whether it manages its personnel according to civil service or private sector labor codes; whether and under what terms it can be sued. Insurers that are more clearly incorporated as private firms may be held accountable to their members through normal consumer protection laws and proceedings; while insurers that are constituted as public offices may enjoy immunity from certain kinds of legal actions.
The conditions of Stakeholder Participation are another dimension of governance that seems to affect performance through its influence over the flow of information and accountability relationships. At a minimum, good governance seems to require some opportunity for stakeholders – including owners, but sometimes also including disinterested parties, consumers, employees, or medical care providers – to participate and affect decision-making. Representation of consumers’ and employees’ interests may be indirect – as when insurance agencies are directly operated as part of government – or direct – as occurs in consumer or medical cooperatives. It is common for insurer’s to be governed by a Board of Directors, whose members are elected by shareholders, employers, employees, or beneficiaries. This election may be direct or intermediated by unions and employer associations. Terms can be short or long, synchronized or staggered, and terms of office, ethical standards, and compensation also vary. Decisions regarding the mechanisms for selecting and maintaining a Board have to consider that each choice has an impact on the degree of independence enjoyed by Board Members and on the incentives they face in guiding the institution. Participation is also affected by the historical context; in particular, whether the country has a tradition of management through seeking consensus or decision-making through adversarial negotiation.
The third dimension of Transparency and Information plays a critical role in effective governance. Transparency requires, first and foremost, that the basic elements of the system – its legal foundations, procedures, and administration – are clearly stated and disseminated to the public. By explicitly documenting the system’s structure, the roles and responsibilities of different actors and the rights and obligations of the affiliated population, it is possible to know just who can be held accountable for what.
In addition, transparency requires that the system be managed in a way that allows the public and interested parties to know what is being done by whom, from disclosure of conflicts of interest to opening negotiations and decision-making hearings to public scrutiny. The forms and frequency of information that are made available to the public can itself promote better performance by ensuring that decision-makers, at different levels, know they can be held to account.
In general, greater disclosure of information enhances the accountability of insurers; however compiling and publishing information in a readily useable form can be expensive. In most cases, policies try to set standardized information reporting that allows consumers and regulators to hold insurers’ accountable for making good decisions on a timely basis without creating an undue burden. The standards for financial reporting may be straightforward, oriented toward assuring that insurer’s have the liquidity to meet their obligations. However, standards for reporting medical care and treatments are currently at a more primitive level of development and appear to be more complex.
Supervision and Regulation are another dimension of governance that can hold insurers accountable for their performance. In some countries, insurers operate in a relatively unfettered market and governmental supervision is restricted to assuring that contracts are fulfilled and that basic fiduciary responsibilities are followed. At the other extreme are countries with laws and/or regulations that establish strict conditions for operation, including standardizing contracts, defining a basic health plan, requiring insurers to accept any applicants regardless of health status, setting premiums, and/or requiring that contracted providers meet quality of care standards.
Governmental supervision can be conducted through ex ante reviews or ex post auditing. It can be the responsibility of a specific government office, a quasi-governmental independent agency, or through delegation to a privately constituted entity. The supervisory agent’s funding can come directly from government budgets, from taxes on premiums, or as a payment directly from the regulated insurers.
Finally, the fifth dimension of governance is related to the Consistency and Stability of the system. Mandatory health insurance involves a range of long-term investments and inter-temporal commitments that condition today’s decisions on tomorrow’s prospects. This dimension is strongly influenced by the political and legal context – governments that have a history of frequently and readily altering policies will have difficulty establishing credible “rules of the game.” If the difficulty of establishing consistent and stable policies is primarily a problem within the public sector, a system that establishes independent insurers constituted under a private legal framework may provide greater predictability (Spiller and Savedoff 1998); in cases where public sector governance is effective and private firms face greater uncertainty, a public ownership model might provide greater consistency and stability.
Of course, conditions change over time and rules that are set at one point in time cannot be considered to be completely unchangeable. Rather, transparent mechanisms can establish the conditions under which different rules can be changed. For example, the rules for permitting (or prohibiting) competition in the insurance market are so fundamental that a government should probably have to undertake substantial debate and build wide political support before enacting changes. By contrast, the rules for deciding what benefits are included in a standardized health package need to be more flexible to account for changing technologies, knowledge, productivity, resources, and systemic innovations.
In sum, effective governance of a health insurer depends upon having coherent decision-making structures; stakeholder participation; transparency and information; supervision and regulation; and consistency and stability. While the literature and experience provide numerous ideas about the advantages and disadvantages of different arrangements within these categories, most of these “lessons” are actually hypotheses that require empirical testing. Furthermore, the way these different dimensions of governance function will vary considerably depending on whether insurers are subject to competition and the kinds of provider payment arrangements they are engaged in. The next section turns to these contextual dimensions that affect mandatory health insurance system performance.
Models of Mandatory Health Insurance
As noted earlier, the governance dimensions discussed above are critical but they do not exhaust the factors that influence an insurer’s behavior. Notably, the existence of competition and the relationship with providers will have substantial impact. Reviewing the dynamics of MHI systems suggests that these two aspects – the number of insurers and the way they negotiate “prices” and “quantities” (that is, premiums, fees, subsidies, eligibility, benefit packages, etc.) with providers – appear to play a defining role. In this regard, four distinct models can be proposed, each of which presents particular advantages and challenges with regard to establishing effective accountability mechanisms (See Figure 1.4).
Figure 1.4: Four models of mandatory health insurance coverage with selected examples
| Single Insurer | Multiple Insurers |
| Model 1: Direct Provision Costa Rica Mexico | Model 3: Corporatist |
| Model 2: Single Payer | Model 4: Regulated Market |
The first of these models is a single dominant insurer with a substantial capacity for direct provision of medical and health care services – denoted here as a “direct provision” model. The dominant form of setting payments and allocating resources is through normal public sector arrangements, including internal contracting. This can be found in
A second model also has a single dominant insurer, but in this case, health care provision is separate and generally plural. These systems, denoted “single payer”, are found in many Eastern European and Central Asian countries such as
The third model includes multiple insurers who may or may not be competing with one another for clients. It is characterized by a structured form of bilateral bargaining between insurers and providers through their respective associations. This will be denoted as the “corporatist” model. It is found in much of Western Europe and exemplified by
The fourth model can be described as “regulated competition”, and is found in countries like
A fifth model could be proposed, stressing the relationship between the health insurance agent and its beneficiaries, but at present, this feature does not seem to dominate in any country with MHI. It certainly plays a role and may be more important in cases where Health Insurance entities are relatively small associations. For example, mutual associations organized by consumers appear to behave differently than those organized as medical cooperatives in
The importance of these different models is illustrated in Table 1. In cases where a single insurer directly provides care, it is difficult to leave the insurer’s corporate structure to chance. For example, it may be advisable to include consumer, employee, and even governmental representatives (e.g. from the Ministry of Health) on the Board of Directors to assure that their interests are taken into consideration since they have not alternatives in the marketplace. By contrast, in a system with multiple insurers – such as regulated competition – the specific composition of Boards could be more flexible, and left to the determination of each firm, because consumers and employees are not wedded to a particular firm and can express dissatisfaction by leaving.
Similarly, assuring that a single insurer is governed properly requires mechanisms for negotiating benefits, payments, and premiums with an institution that has weak incentives to control costs or improve service. By contrast, insurers in competitive systems may have stronger incentives to control costs and improve service, but they also have incentives to use marketing and advertising to gain advantage in ways that do not necessarily reflect better quality care or financial protection. Hence, in these multiple insurer systems, oversight needs to grapple not only with assuring financial solvency and appropriate medical care, but also consumer protection.
Table 1.1: MHI Models and Implications for Accountability
| Model | Number of Insurers | Provider Payment | Selected Implications for Accountability Mechanisms |
| Direct Provision | Single | Public Administration and/or Internal Contracting | - May have soft budget constraints - Lack of benchmarking information - Risk of capture by providers - Oversight requires political or economic counterweight to the Insurer |
| Single Payer | Single | Monopsonist negotiating with multiple providers | - May have soft budget constraints - Lack of benchmarking information - Risk of capture by providers - Oversight requires political or economic counterweight to the Insurer |
| Corporatist | Multiple | Negotiation between representative associations | - Possible to rely on associations for overseeing certain aspects of performance. - Need to assure legitimate process for selecting representatives |
| Regulated Market | Multiple | Various forms of contracting providers with different payment setting processes | - Possible to elicit information about costs through comparative analyses. - Possible to rely on shareholders for assuring efficiency - Consumer protection procedures need to be in place - Risk that insurers may “capture” regulator |
Environmental factors
Other factors that influence the performance of a mandatory health insurance agent include economic variables such as national income level, formality of the labor market, the supply of medical care services, and the depth of financial markets; as well as political variables such as the capacity for enforcing laws, contracts, and regulations. Any research program has to determine how it will control for these environmental factors for two reasons. First, it is necessary to isolate the policy variable from these potentially confounding factors. Second, controlling for these environmental factors is necessary to judge the generalizability of findings beyond particular contexts.
* * *
In sum, the proposed framework is based on relations: accountability through effective governance structures, competition, and payment of providers. It proposes focusing attention on which governance structures – namely coherent decision-making structures; stakeholder participation; transparency and information; supervision and regulation; and consistency and stability – are most effective in improving the performance of mandatory health insurers. Hypotheses regarding the particular mechanisms that are most relevant, important and effective can be generated with reference to the literature on Principal-Agent models and Transaction Cost models.
However, the focus on governance dimensions cannot ignore the impact of widely differing MHI contexts. To manage this, four models are proposed – direct provision, single payer, corporatist, and regulated market – that distinguish systems with single insurers from those with many insurers, and distinguish those with corporatist forms of negotiating benefits and payments from those with more decentralized and market-like mechanisms. The research strategy would be to compare the performance of different accountability mechanisms after controlling for these core institutional differences – such as competition and payment negotiation as summarized by the four models – and to control for environmental factors such as income levels and political systems that influence the generalizability of any findings.
5. Cases
It is not yet possible to conduct an exhaustive study of which forms of governance perform best, largely because institutions are so multifaceted, the number of “observations” available to us (i.e. countries and insurance funds) is relatively small and the literature has not yet converged on precise definitions for relevant variables and how to measure them. Furthermore, governance mechanisms interact with other social institutions and, therefore, the performance of any particular mechanism is likely to vary across contexts. Nevertheless, it should be possible to move this research agenda forward by investigating specific cases within the proposed framework, and using the examples to help refine variables, concepts, and questions. In the process, we can learn from the experiences of these countries, seeing how societies have addressed their dissatisfactions with health insurance fund performance by reforming them. The resulting lessons for low-income countries that are introducing or expanding mandatory health insurance funds then come in several flavors: problems that can be foreseen and avoided, opportunities that other countries struggled for but which the newer countries can seize from the start, and qualifications regarding how context can trump even the best-laid plans.
This section discusses four detailed case studies –
The main four cases presented here were selected because they each represent one of the four models identified earlier.
The
In the
The first thing to note about all four cases is that they perform reasonably well in terms of insurance coverage, access to health care services, population health, and financial protection relative to other countries in the world (See Table 1.2). Over 90% of the population is formally affiliated with an insurer in all four countries, and access to many health care services is close to universal, as well. For example, professional birth attendance is close to 100% in all four countries. The four countries also rank high in population health status with average life expectancies well above 70 years and child mortality rates below 15 per 1,000 children under the age of 5. Out-of-pocket expenditures range from 8% of total health spending in the Netherlands to 24% in Chile, which is only a very rough indication of the degree of financial protection, but still much better than most developing countries (Xu et al 2003).
This is not to say that people are entirely satisfied with these systems. To the contrary, complaints are aired in the media and legislatures about rising costs (in all four countries, despite widely different levels of spending), waiting lists (particularly in Estonia and the Netherlands), absenteeism & evasion (particularly in Costa Rica), and health care quality and equity (particularly in Chile). The problems are real and legitimate, but they also need to be placed in context. In lower income countries like Bangladesh and Nigeria, insurance coverage rarely surpasses 10% and professional birth attendance is a mere 13% and 35%, respectively. Even in many middle-income countries, universal health insurance is still a distant dream, evasion is common, and costs are high.
In considering the generalizability of these experiences to low-income countries, it is important to recognize that all four countries have reasonable economic and political stability, rank high on general governance indices, and have substantial resources – Costa Rica is the least wealthy, but still enjoys a per capita annual national income of US$4,470. The countries also range in size from the smallest,
Table 1.2: General Characteristics of Case Study Countries
| | | | | |
| First Mandatory Health Insurance Law | 1924 | 1941 | 1991 | 1941 |
| Insurance Coverage (% of population, Public/Private, between 2000 and 2003) | 68/17 | 100 | 95 | 63/37 |
| Gross National Income per capita (US$ in 2004) | 5,220 | 4,470 | 7,080 | 32,130 |
| Population (millions in 2004) | 16.1 | 4.3 | 1.3 | 16.3 |
| Life expectancy at birth (years for Male/Female in 2004) | 74/81 | 75/80 | 66/78 | 77/81 |
| Under 5 Mortality Rate (per 1,000 in 2002) | 9 | 13 | 8 | 5 |
| Total Health Expenditure p.c. (US$ in 2004) | 359 | 290 | 463 | 3,442 |
| Out-of-pocket share of total health expenditures (2004) | 24.3 | 20.4 | 21.3 | 7.7 |
| Attended Births (% in 2001) | 100 | 98 | 100 | - |
| TI Corruption Index (Rank in 2005) | 21 | 51 | 27 | 11 |
Sources: WHO, World Health Statistics, 2006; World Bank, World Development Indicators 2006; and Transparency International, Global Corruption Report 2006.
Given that these health insurance funds perform reasonably well despite widely varying forms of governance, it is unlikely that a single form of governance is the “right” approach. Rather, we need to analyze the variation in governance mechanisms from two different angles. First, we need to catalog the differences so that low-income countries that are implementing MHI can see the full range of approaches that have been tried. Second, we can identify ways in which countries converge on solutions for common problems. Ultimately, we need to analyze how particular governance mechanisms emerge from and interact with their context so that the appropriateness of particular approaches can be better assessed before they are rejected or adopted.
Governance, competition and relationship with providers
The governance mechanisms discussed earlier – coherent decision-making structures; stakeholder participation; supervision and regulation, consistency and stability, and transparency and information. – vary substantially across the cases. For example, mandatory health insurers range from wholly public entities to private for-profit firms in ways that strongly affect their decision-making structures.
One common hypothesis is that ownership should affect Coherent Decision-Making Structures, particularly with regard to financial solvency, yet these cases suggest that ownership is not sufficient in itself. The four countries here include experiences of deficits and surplus in both private and public funds. In both the
Other countries – such as
Decision-making is also affected by the insurer’s legal status – particularly as it the insurer’s ability to manage personnel. The staff of public insurance funds in
Stakeholder Participation in these mandatory health insurance systems also varies substantially. The highest decision-making authorities within
None of these arrangements is unique. Tripartite representation on supervisory boards is quite common and is found in countries that have relatively old social health insurance institutions, including
In the two cases with tripartite representation,
The existence of different representatives on Supervisory Boards does not appear to have provided sufficient oversight, transparency or pressure to reveal and deal with conflicts of interest or corruption. Decisions regarding investments and allocations are reported to be influenced in both countries by providers who serve on Boards, and in
Transparency and Information seem to play increasingly important roles in all four cases, though some appear to be more open and sophisticated in dissemination than others. Information reporting requirements are significant in all four countries. Generally, insurance funds are required to report annually on their finances and performance to their Boards or other supervisory authorities, with more frequent reports going to financial supervisory authorities on a monthly or quarterly basis.
Supervision and Regulation in these cases involves a mix of legislative, executive and independent agencies. In
Until recently,
Like
In
It is not clear whether one form of supervision is better than another. What is apparent from these cases, however, is that supervisory functions are becoming more uniform (more on this below), more explicit, and encompassing a wider range of functions. On this latter point, all four countries have established audit systems to assure transparency in financial accounting. They also have addressed issues of financial solvency, particular with regard to non-governmental insurance funds. Attention to the quality of care, to consumer protection, and to other performance measures is less consistent, but becoming more common.
The character of regulation also varies considerably as a function of the insurance funds’ degree of independence (See Table 1.3). At one extreme, the private insurance funds in
Table 1.3: Decision-making Authority by Country and Issue
| Issue | | | | | ||
| | FONASA | ISAPREs | CCSS | EHIF | Sickness Funds | Voluntary Funds |
| Contribution Levels | MoF | Management | BoD | Parliament Parliament | MoH MoF | Management |
| Payments to Providers | MoH | Management | BoD Providers | Government | | Management |
| Benefits Package | MoH | Management | BoD, CEO (Courts) | Government | MoH MoF | Management |
| External Auditor | Comptroller | Private CPAs | Comptroller | Comptroller | ? | Pension- and Insurance Chamber |
| Internal Auditor | Yes | Yes | Yes | Yes | Yes | Yes |
Sources: Case studies in Chapters 3 through 6.
Note: MoF = Ministry of Finance; MoH = Ministry of Health; MSA = Ministry of Social Affairs; CPA = Certified Public Accountant; BoD = Board of Directors; CEO = Chief Executive Officer.
Consistency and Stability appear to mark all four systems to some extent. Though the Chilean system was established first, its significant reform in the early 1980s made a clear structural break with the past. Nonetheless, the evolution of Chile’s mandatory health insurance system since the return of democracy in the early 1990s demonstrates how a relatively open political process can alter the rules of the game without undermining general confidence in the system by most stakeholders, including public sector agencies, private insurers, providers, and beneficiaries.
These five elements of accountability – coherent decision-making structures; stakeholder participation; supervision and regulation, consistency and stability, and transparency and information – do not, in themselves, explain the performance of the insurance funds. They do, however, demonstrate how each country has chosen to empower and constrain the funds, balancing autonomy and dependency, to encourage solvency, efficiency, and good service. The fact that all four countries continue to revise and reform these accountability mechanisms also demonstrates that this balance is difficult to achieve, that pragmatic approaches are needed, and that standards and goals evolve over time.
The two contextual factors that underlie the four system models vary across the country cases by design. Competition is a factor in
Competition is an indirect way of holding insurance funds accountable in the sense of creating incentives and pressures to perform well. In the cases here,
In
The Chilean case suggests that competition between the public and private sectors may have spurred innovation in both directions. For example, the private sector voluntarily created a high-cost coverage plan when it was criticized for “dumping” its most critically ill members on the public sector. In the other direction, FONASA adopted electronic reimbursement after it had become widespread among ISAPREs. In the
In both
The relationship between insurance funds and health care providers is a critical conditioning factor for health insurance fund performance. The major contrast in these cases is between
In
6. This Book
Mandatory health insurance is governed according to different models. The performance of health insurance funds is influenced by the governance mechanisms that are in place, but also by the way these governance mechanisms interact with the broader political and social context. This chapter has presented definitions, conceptual frameworks, models, and country experiences with the aim of informing choices that countries will make when they create or reform mandatory health insurance systems.
Precise conclusions regarding which governance mechanisms are most effective is not possible at this time because we lack systematic data of sufficient cases to draw such conclusions. Nevertheless, identifying and defining relevant institutional indicators and testing them against relevant performance measures, it is possible to both further the longer term research objectives and to extract more useful information from country experiences.
The case studies presented here are useful because they provide a catalog of governance mechanisms that have been used in different places. By reviewing these cases, policymakers can see a wider range of options than they may have considered before. Secondly, the case studies show areas of convergence – issues around which very different countries have adopted similar approaches to difficult problems. For these issues, policymakers would be well-advised to consider adopting something similar unless there are very strong compelling reasons to think that they would not function well in the new context. Finally, reviewing the case studies within the broader framework can sensitize policymakers to policy problems which do not have readily apparent solutions, but which must be confronted in one way or another.
The following chapters provide more useful detail on all these points. Chapter 2 discusses efforts to identify and measure institutional dimensions of health insurance governance more precisely, along with its application to four countries. The following chapters present the experiences of
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[1] The author gratefully acknowledges the support, suggestions and comments from Pablo Gottret, Axel Rahola and Birgit Hansl. The authors of the case studies, James Cercone, José Pacheco, Ricardo Bitrán, Rodrigo Muñoz, Hans Maarse, and Triin Habicht, also provided important insights to this work along with key information. Any remaining errors are the author’s responsibility.
[2] Author’s calculations from National Health Accounts data and IMSS publications.
[3] One resolution would be to reserve the term SHI for systems that share these characteristics with Western European countries, but this creates two problems. It ignores the commonalities between Western European MHI systems and others; and it artificially limits the range of design alternatives available to policymakers. It is also worth noting that all the organizations listed here are members of the International Social Security Association and consider themselves to be social health insurance.
[4] Definition of Corporate Governance from the Preamble (p. 3) of OECD 2004a.
[5] See Laffont & Tirole 1993, Chapter 11 for an overview of theories and application of the concept of “capture”.
[6] For example, the Social Security Institute of the
[7] Numerous schemes have been proposed for analyzing governance. This list draws from Preker & Harding 2003, WDR 1997, Williamson 1996, World Bank 1995 Bureaucrats in Business and the authors’ own experience.
[8] The EHIF Board has authority to use the “cash reserves” and “risk reserves.” A third “legal reserve,” not less then 6% of the annual budget, is set aside and can only be used by order of the government.
[9] This is part of a broad effort to improve public sector performance that is called a “balanced scorecard.”
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