Absence of Health Insurance Markets will impede Universal Health Coverage

Irrespective of the scale of operation or model adopted, unless a market for health insurance is well established – it would be very difficult for health insurance to take proper root in Sub-Saharan Africa (SSA) as a viable financing mechanism for healthcare. A health insurance market occurs when individuals and insurance companies communicate with each other to buy and sell health insurance. On the demand side – individuals who wish to buy health insurance do so in order to maximize their ‘utility’; while on the supply side – insurance companies who wish to sell health insurance do so to maximize their ‘profits’ (or ‘surplus’). And both sides communicate with each other through the medium of health insurance premiums.

The failure to allow this basic arrangement to happen in SSA has given rise to all sorts of programmes and projects that have never left their pilot stages. Meanwhile, as countries continue to explore the promise of health insurance as a significant alternative source of funds for health care, many have been led to undertake schemes that do not take this very perception into account.

Contrary to common knowledge, health insurance is ‘not a health intervention’, rather it is a ‘financial instrument’ that allows easy access to health care. Part of this misunderstanding stems from the influence of donor agencies that are largely averse to using ‘market-based solutions’ in resolving critical development problems; but the main reason for not encouraging countries in SSA to develop health insurance markets is because of the notion of wide spread poverty in the sub region. Nevertheless, we know that even for poor people, market-based solutions have proved to be delivering much better value to them than traditional approaches. Manufacturers of fast moving consumer goods and Mobile Telephone companies in SSA who are already profiting from this knowledge have managed to turn this group into effective consumers for their products and services ◊◊◊

Health Insurance: making the Informal Formal

Consumers

In his book Africa Rising, Vijah Mahajan portrayed the African economy as the 10th largest in the world, but often underestimated due to the large size of the informal economy. More like a parallel economy (almost 50% of GDP), the International labour Organisation in Geneva, estimated that the informal sector also accounts for over 70% of employment in Africa.

Over the years, policy makers and practitioners have had great challenges in making health insurance services available to this group – either as a means of financial protection against the risk of unexpected and expensive illness; or as a form of savings set aside to cover relatively predictable contingencies such as annual medical check-up or even treatment for acute malaria for example.

Past attempts at providing health insurance coverage for those working in the informal sector and their families through community-based or micro-health insurance schemes were seen to have not achieved their desired impact. This was largely attributed to the realisation that irrespective of the scale of operation or population segment that is covered, financing healthcare through insurance requires the same level of managerial and technical sophistication necessary to deliver real value to clients while remaining viable.

Therefore, in the era of Universal Health Coverage, there needs to be creative redesign of workable business models away from traditional approaches that are not scalable. Going by the Africa Rising script, one could propose that the challenge of expanding health insurance to the informal sector is similar to the problems of distribution of products to reach those at the bottom of the income pyramid being faced by manufacturers in Africa. And their experience in overcoming these difficulties appear to be the paradigm shift required for making health insurance products available to this group. It has been noted that by understanding local consumers and the small unorganised retailers, using computer routing to find the best path through a complex and fragmented retail network; many multinational companies such as Unilever and Coca Cola were able to bring the informal sector within their sphere of influence to join the mainstream of consumers of their products.

Learning from this model, the task in Africa for health insurance organisations (for-profit or non-profit) especially Health Maintenance Organisations and Health Insurance Companies is to organise health insurance for the informal economy in a manner that strategically aims at bringing this group into a ‘single pool’ of contributors and beneficiaries, along with their formal sector counterparts. This would require the use of creative means as outlined above to ensure that while offering the full range of services to this population, their premium contributions are fair enough for them to remain consumers of health insurance products and services. No doubt, there would be linkages with other aspects of the emerging market for health insurance in Africa including premium subsidies by government or other bodies, as well as incentives for insurers and providers to specifically target the informal sector population ◊◊◊

Universal Health Coverage: how health insurance may help

In as much as health insurance shows great promise in improving financial access to healthcare, its ability to promote fairness (equity) is limited by the economic capacity of the population. For this reason, national health insurance programmes in many sub-Saharan African counties have only succeeded in reaching a relatively small formal sector, while community-based pre-payment schemes targeting rural and urban low-income households are yet to be scaled-up for impact.

Theoretically, there is an assumption that it is possible to attain universal health coverage (UHC) by making health insurance coverage mandatory. While this is yet to be fully tested even with the ongoing experiments in the United States of America with ‘Obamacare’, and several tiers of coverage in Indonesia – there is great anticipation for such a policy to be true and thus a high demand for it even in Nigeria. But as health insurance systems involve a highly complex combination of incentives to providers, consumers and third-party fund holders; mandatory health insurance coverage will necessarily require a ‘market for health insurance with some regulation’. This is to ensure that while the beneficial effects of universal access to care are being extracted, the unintended detrimental consequences of lack of equity and inefficiency are modulated.

And critical to success, is to ensure that access to health insurance is not dependent on income, by identifying those for whom premiums need to be fully paid for or subsidised. Apart from having local government agencies or community-based organisations to be well organised and have the skills to implement prospective means tests of the population, there needs to be a proper role re-definition of public sector (government) away from direct implementation to oversight of the system. While guarding against corruption and rent-seeking for example in Nigeria, this role could entail: defining a cost-effective package of standard minimum benefits that must be covered in all insurance plans; supplying information to consumers regarding their choices; subsidising (or fully paying) the premiums of low-income groups; and regulating the activities of health insurance companies or agencies which may be for-profit or non-profit. The market for mobile telephoning that is accessible to all socio-economic and demographic groups, where the Nigerian Communications Commission plays this public sector role effectively provides a good model for practice ◊◊◊