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GLOBAL HEALTH: Private Insurance For Developing Countries



December 4th, 2006

In a March 2006 paper in Health Affairs [2-week free access], Mark Pauly and colleagues describe some of the thinking behind the World Bank’s interest in experimental programs to foster the growth of private insurance in developing countries. The authors’ focus is on countries where per capita income is low, government resources are limited, taxation is poorly designed and managed, and adequate medical care is in short supply. “The primary rationale for considering private insurance options,” they write, “is public systems’ widespread failure to provide insurance coverage that satisfies the needs and desires of citizens in developing countries for financial protection” (emphasis added). This assertion, I suggest, is largely wrongly conceived.

While the paper’s focus is on certain nations in Latin America, Africa, and Asia which have developing economies, it might be instructive to cast our minds back three-quarters of a century in the United States. The situation then was not all that different from what the paper describes. In the U.S., during more than a decade of the Great Depression, there was no governmental payment for medical care except for the active military and other institutional care. No health insurance was being offered by the insurance industry. Millions were living in poverty.

At the same time, the nation’s hospitals were starved for resources to the point that it had become common for their employees to work for little more than room and board. A relatively affluent minority of the population could get needed care without having to accept charity, but for many, affordable care was out of the question. The very needy were served by hospitals and doctors without payment, but most Americans were loath to accept charity.

The problem of access to medical care was examined in the early 1930s by the blue-ribbon Committee on the Cost of Medical Care, which proposed that local communities and their hospitals should band together to create schemes which would allow ordinary people to have access to needed care for themselves and their families. They would do this by joining as “subscribers” of new “prepayment plans.” There were several models already in existence in the late 1920s and the beginning of the 1930s, mainly in small Midwestern towns with just one hospital. The CCMC urged that this experience be built upon nationwide.

It is important to stress that these plans were not seen primarily as “insuring” people against unaffordable financial losses. The larger social problem was that people were not getting needed medical care and that their community hospitals didn’t have revenues to cover the costs of staffing, supplies, and equipment. This closely resembles the conditions in many developing countries today.

The plans thrived and grew across the U.S. as community-based nonprofit organizations. Volunteers did the recruitment and collected small weekly subscriptions, typically on payday in the workplace, which were placed into a fund initially held by the hospital or hospitals whose trustees had participated in forming the plan.

These payments obliged the hospitals to furnish needed care to subscribers, with no reference to cost or prices, or even to billings and invoices. As late as 1946, when more than 21 million Americans were enrolled in 86 local plans, a typical rate was 75 cents a month for an individual and $2 a month for a family.[1] There were no restrictions on joining based on age or condition; in fact, it was not at all unusual for patients to be recruited to join as subscribers after being admitted to the hospital. The commercial insurance bugaboo of “adverse selection” had nothing to do with what was happening, and the administrative costs were typically less than 5 percent.

The organizations were “service benefit plans,” and special enabling legislation was enacted in nearly every state to distinguish them from insurance companies which paid policy-holders to indemnify financial “losses.” Insurance companies are rightly required to maintain large financial reserves to assure that enough money is there to pay claims. In contrast, if there weren’t enough funds paid in by the subscribers to pay for all of the days of care they needed, the member hospitals underwrote the plan by accepting lower reimbursements.

Is the original Blue Cross concept adaptable to the situations in the developing countries described by Pauly and his colleagues? I suggest that it is, and I am disappointed that this alternative seems barely to have been considered in their paper.

The authors stress the “key fact” that these countries’ economies are “developing.” Even where most people may still be poor, many have income and assets. Nevertheless, most simply don’t have effective access to care. The providers don’t have the resources to provide the care for free, and the patients don’t have enough ready cash to pay even at low prices.

If community leaders formed consumer cooperatives or mutual benefit societies and encouraged local people to join for a weekly pittance, a meaningful pool would accumulate. Surely in the developing countries which the authors discuss, there are communities and regions in which the doctors, clinics, and hospital dedicated to serving their communities. They are among the entities that now receive the out-of-pocket disbursements that the paper’s Exhibit 1 displays. These may represent the bulk of their revenues, but in all likelihood, they are insufficient to allow them to provide adequate care, especially for those who don’t seek it because of its cost.

The authors point out that in these countries, there is a viable basis for population-based risk sharing: a large number of people could pay small regular amounts instead of a small number being faced with unpayable bills. What they seem not to have considered is that this situation engenders a powerful set of aligned interests between the health care providers who are struggling to serve with inadequate resources and large numbers of employed people who are unable to obtain needed care because they can’t pay for it. With lowered financial barriers, more people would avail themselves of needed care. The larger and more secure funding would enhance the providers’ capacity to serve more patients.

Is there a role for international aid organizations to help to jump-start such community-based plans? Let’s hope the World Bank will consider the possibility.

NOTES
1. From testimony presented by Dr. C. Rufus Rorem, director of the American Hospital Association’s Blue Cross Commission, before the Senate Committee on Education and Labor, 22 April 1946. Much of the information in my posting is supported by this testimony.

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