A functional model for monitoring equity and effectiveness in purchasing health insurance premiums for the poor: Evidence from Cambodia and the Lao PDR

Abstract

Objectives

To assess the impact on equity and effectiveness of introducing targeted subsidies for the poor into existing voluntary health insurance schemes in Low Income Countries with special reference to cross-subsidisation.

Methods

A functional model was constructed using routine collected financial data to analyse changes in financial flows and resulting shifts in cross-subsidization between poor and non-poor. Data were collected from two sites, in Cambodia at Kampot operational health district and in the Lao People's Democratic Republic at Nambak district.

Results

Six key variables were identified as determining the financial flows between the subsidy and the insurance schemes and with health providers: population coverage, premium rate, facility contact rate, capitation rate, cost of treatment and changes in administration costs. Negative cross-subsidization was revealed where capitation was used as the payment mechanism and where utilisation rates of the poor were significantly below the non-poor. The same level of access for the poor could have been achieved with a lower Health Equity Fund subsidy if used as a direct reimbursement of user charges by the Health Equity Fund to the provider rather than through the Community Based Health Insurance scheme.

Conclusions

Purchasing premiums for the poor under these conditions is more costly than direct reimbursement to the provider for the same level of service delivery. Negative cross-subsidization is a serious risk that must be managed appropriately and the benefits of a larger risk pool (cross-subsidization of the poor) are not evident. Benefits from combined coverage may accrue in the longer term with an expanded base of voluntary payers or when those with subsidized premiums are lifted out of poverty.

Introduction

Many low- and middle-income countries (LMICs), particularly in Asia, have entered a path towards universal coverage of their populations with health insurance and other demand-side subsidies to provide equitable access to health services [1], [2], [3], [4]. The specific nature of each country's cultural and economic norms means that universal coverage takes different forms, from single-payer government systems to mixed models comprising a variety of financing mechanisms [5]. While the primary aims are to ensure access to services without financial barriers and to prevent impoverishment from health costs [6], there is no single formula for universal coverage [7].

In some countries, such as the Philippines or Vietnam [8], [9], [10], subsidy schemes for the poor have been incorporated within formal-sector social health insurance (SHI) schemes in which the government purchases health insurance premiums for the poor. In Thailand, the government provides free care for the poor within a multi-agency universal coverage scheme [11], [12]. In Rwanda, together with national risk pooling and compulsory insurance membership, the informal sector is covered by local-level mutuelles for the poor supported by government and donor subsidies [13]. Both Cambodia and the Lao PDR are now, to different degrees, building locally based voluntary Community Based Health Insurance (CBHI) schemes for the informal sector and Health Equity Funds (HEF) as subsidy schemes for the poor financed by donor and government funding [14], [15]. This ‘mixed’ approach raises practical and policy issues related to fragmentation, fund pooling and risk pooling [16].

One key issue is the means for targeting the poor within the context of health insurance coverage. Using the example of Cambodia, Jacobs, Bigdeli et al. [17] point to the potential advantages and pitfalls of using funds from other social health protection schemes (like HEFs) to purchase CBHI premiums for the poor. The authors argue that this provides a subsidy for premium revenues generally required by new CBHI schemes, that fragmentation of schemes is overcome and efficiencies are increased, and that purchasing power is strengthened. In particular, they discuss the unintended, negative cross-subsidy from the poor to the non-poor that may arise and argue this could be mitigated (and reversed) by discounting the premium rate for the poor and paying additional benefits for ancillary costs such as food and transport.

In this paper, a functional model is developed to measure financial flows between such demand-side financing schemes. Our focus is on providing improved access to health services for the poor and on equity issues related to cross-subsidization rather than broader issues related to pre-payment, insurance coverage and strategic purchasing. The model reflects a situation where the HEF purchases premiums for the poor from the CBHI scheme while the CBHI scheme uses a capitation method for health provider payments. However, the model could be modified or expanded for use more broadly to investigate the relationships between different demand-side financing schemes and may also be used with different provider payment methods.