Social Health Insurance and Equity in Post-Soviet Health Systems

Abstract:     
Compulsory social health insurance (SHI) has been widely advocated as an approach for low and middle income (LMI) countries to expand risk pooling. Experience to date from countries in Africa, Asia, and Latin America with large informal economies suggests, however, that "starting insurance" with the formal sector can actually be harmful for equity. The formal sector tends to be relatively well-off, and hence already have better access and financial protection. Hopes that SHI would "free up" public resources for the poor have largely not been realized, nor have good intentions to gradually extend coverage by such schemes to the rest of the population. Instead, the initially covered groups advocate for greater benefits and lower contributions, and through their organization and political influence are able to capture an even greater share of public subsidies.

It is against this experience that the paper analyzes SHI introduction in many of the LMI successor states to the USSR. The intent of SHI introduction was similar to LMIs elsewhere: increase prepaid revenues for health, and incorporate the entire population into the new system. There were also intentions to use SHI as the means to introduce new incentives for productivity, efficiency, and quality into the system (incentives that were absent and even perverse under Soviet budgeting rules). The early 1990s were, however, a period of great disruption to the economies and social systems of these countries, with dramatic drops in economic growth, employment, and fiscal revenues. In this context, most of the early implementers (Russia 1993, Georgia 1995, and Kazakhstan 1996) focused on the role of the SHI scheme in generating new revenues and changing financial incentives but did not substantially alter the flow of general budget revenues. As a result, they failed to realize anticipated increases in revenues, coverage, efficiency, and redistribution. In the low income countries of Kyrgyzstan (beginning 1997 and extended 2001) and Moldova (2003/04), by contrast, SHI was part of a comprehensive approach to health financing reform, with the new revenues from payroll taxation used in an explicitly complementary manner to general budget revenues.

The paper argues that differences in how the level and flow of general budget funds changed explain much of the relative failure or success of SHI reforms. Another critical component of success was a focus on reducing fragmentation in financing systems. Empirical evidence from both Kyrgyzstan and Moldova reveals how centralization of pooling, combined with output-based provider payment methods, reduced geographic inequity in health budget allocations per capita. These experiences illustrate how SHI can be an instrument to reduce fragmentation and improve equity, rather than the reverse that has been experienced elsewhere. More generally, and regardless of the label attached to any particular financing scheme, it argues for a comprehensive approach to health financing policy with explicit attention to the coordination of pooling arrangements of different funding sources.

Keywords: health financing reform, equity, transition economies

JEL Classifications: I18

Working Paper Series