by Adam Wagstaff (World Bank)

1. Financing Social Health Insurance in Developing Countries: Impacts on Fiscal & Labor Market Outcomes by Adam Wagstaff (World Bank) IDB/PAHO Regional Workshop on “Fiscal Space and the Financing of Universal Health Care in the Americas” Washington DC, 29 - 30 November 2007

2. Introduction • 90% of OECD countries finance majority of health expenditures publicly • Half use general revenues. Other half have SHI systems, dedicated earnings-related contributions for formal-sector workers • Among the non-OECD countries, 56% finance a majority of health spending publicly, and only 20% have SHI • Many countries are embracing SHI, often with the blessing—if not the encouragement—of donors • Yet this is happening at a time when • Germany et al. trying to reduce their reliance on payroll financing of health care • LAC advised to follow suit by Baeza & Packard in their Beyond Survival

3. Evidence is clear on some issues • Revenues: • Revenues fall short of “theoretical” levels due to evasion and underreporting of earnings • MOF sometimes reduces govt. spending on health in line with theoretical SHI revenues • SHI financing less equitable than taxes in general • Contribution ceilings limit progressivity • Horizontal inequity: contrib. schedules vary by scheme • Coverage: • Gaps in coverage until countries reach high per capita income

4. Financing less progressive under SHI

5. Gaps in coverage under SHI

6. Evidence is less clear on other issues—i • Do SHI systems spend more on health care? • On the one hand: • People more willing to pay SHI contributions than taxes? • Guaranteed revenue stream? • On the other hand: • Actual and theoretical revenues often diverge • SHI revenues grow more slowly than tax revenues due to ceilings

7. Evidence is less clear on other issues—ii • What are the impacts of SHI on health outcomes? • On the plus side, SHI may: • Bring in additional resources to the health sector • Stimulate efficiency in the delivery system, through separation of purchasing and provision, and provider payment reform • On the negative side, SHI may result in: • Gaps in effective coverage • Focus on inpatient care, neglect of prevention, early detection, etc. • Higher wages in health sector, not necessarily higher quality • Purchaser-provider splits and payment reform happen also in non-SHI countries, not always in SHI ones!

8. Evidence is less clear on other issues—iii • What’s the impact of SHI on employment? • Argued that payroll financing reduces employment, by raising cost of labor. But… • Labor supply curve (for formal sector) shifts rightwards because workers value SHI benefits—so, smaller disemployment effect and a larger reduction in the post-tax wage than in standard case • Relevant question is whether a health system financed through payroll taxes leads to lower employment than one financed through general revenues • Does SHI encourage informalization of the economy? • Depends on incentives people face—ECA different from LAC?

9. Europe & Central Asia’s SHI ‘experiment’—learning opportunities • Staggered and incomplete adoption of SHI in ECA countries during 1990s provides an opportunity to assess some of the aggregate effects of SHI adoption • Study design similar to multiple U.S. studies in many fields that exploit staggered and incomplete policy roll-out across the 50 states • Country-level analysis permits aggregate effects to be estimated. • So, capture effects on all the relevant actors in the health system, including new ones (e.g. new SHI agency, new entrants into provider market, etc.)

10. SHI adoption in ECA: A quick history—i • 1945-1990, most ECA countries financed health care through general revenues and delivered it though centrally-planned Semashko model • In early 1990s, as they shifted from Communism, many countries looked to SHI to help solve several emerging problems: • Dramatic decline of govt. revenues as share of GDP and falling GDP • SHI thought likely to lead to better health delivery system. SHI agency would sit at arms’ length from MOH and MOF, would develop purchasing capacity, promote competition within public sector and between it and private sector

11. Who adopted SHI when? And what share of spending was financed through SHI? Source: HiTs and World Health Reports, various years

12. SHI adoption in ECA:A quick history—ii • SHI makes up a bigger share of revenues in E European countries, where contribution rates are high • Most countries do have a SHI agency, but so too do Poland and Latvia which use income taxes or general revenues • Often MOH still transfers some funds to providers, and SHI agency contracts have taken time to emerge, are often not competitive, and often do not involve private sector • SHI has often but not always led to switch from budgets to FFS or patient-based payments (e.g. DRGs). Some non-SHI countries also switched

13. Methods • Generalization of differences-in-differences (DID) estimator: includes zitg and git • Also estimate eqn below using IV where have evidence that above eqn doesn’t address endogeneity of SHI adequately

14. Health sector outcome variables Health outcomes dataset is 77% non-missing. (69 outcome variables. 28 countries. 16 years. Maximum # observations = 30912. Actual # observations on health outcomes = 23680.)

15. Labor market outcome variables Labor market outcomes dataset is only 55% non-missing. (8 outcome variables. 28 countries. 16 years. Maximum # observations = 3584. Actual # observations on health outcomes = 1987.)

16. z variables * Excluded from labor models. $ Excluded from health models.

17. Basic model: SHI impacts on spending and hospitals

18. Basic model: SHI impacts on life expectancy and mortality

19. Basic model: SHI impacts on cause-specific mortality

20. Basic model: SHI impacts on disease incidence & immunization

21. Effects on SHI impacts of including provider-payment reforms variables

22. SHI impacts on labor market outcomes

23. Conclusions • Already known • Coverage • Gaps often occur under SHI—often among poor, near-poor • Less generous coverage translates into lower utilization but not necessarily inferior financial protection • Raising revenues: SHI vs. taxes • SHI revenues may be lower than expected due to evasion etc., are they more/less predictable? • SHI less progressive than tax finance • New from ECA study • Health care delivery • SHI neither necessary nor sufficient for separation of purchasing & provision • SHI systems more expensive but do not apparently achieve better health outcomes despite higher spending • SHI and the labor market • SHI raises (gross) wages, decreases employment • Impacts on size of formal sector unclear