einstitute.worldbank.org

Health insurance for the informally employedLessons from developing countries

Speaker: Ricardo Bitran

Consultant, World Bank Institute

Research objective

• In light of current drive to achieve universal health

coverage (UHC):

o Review developing country experience with health

insurance coverage extension for informal sector workers

(ISWs).

o Identify challenges, draw policy lessons, and propose an

agenda for further research.

o For more details see Bitran, Ricardo. 2014. Universal

Health Coverage and the Challenge of Informal

Employment: Lessons from Developing Countries. In HNP

Discussion Paper. Washington, DC: The World Bank.

2

Methods

• Review of published literature.

• Review of grey literature.

• Written interviews of key health policy informants from a sample of countries in Latin America (Chile, Colombia, Dominican Republic, Mexico, Peru), Asia (Cambodia, Vietnam), and Sub-Saharan Africa (Ghana, South Africa).

3

Informal employment represents a high share of non-agricultural employment in developing countries; and it has been on the rise in most developing and transition countries

4

Individual’s perspective: The decision to enroll in health insurance

An individual’s decision to enroll in health insurance depends on many variables, including:

• Age

• Gender

• Current health status

• Expected health status

• Income

• Education

• Premium amount

• Access to quality health care if insured vs. uninsured

• Out-of-pocket spending (OOPS) when ill if insured vs. uninsured

Enroll in health insurance

Remain uninsured

$ Premium

Informal sector individual and

family

Accessibility to quality &

prompt health care

Out-of-pocket payments for health care

Accessibility to quality &

prompt health care

Out-of-pocket payments for health care

5

Government’s decision to enroll informal sector in health insurance depends on:• Expected net costs

o Costs of enrollmento Costs of health

services

• Expected net social benefits in terms of improvedo Equityo Health statuso Financial protectiono Citizen’s

satisfaction

Government’s perspective: The decision to cover informal sector with health insurance

Enroll informal sector in health

insurance

Keep informal sector

uninsured

Government

Financial costs• Enrolment• Health services

Social benefits• More equity• Better health• More financial

protection• Satisfaction

Financial costs• Enrolment• Health services

Social benefits• More equity• Better health• More financial

protection• Satisfaction

6

Conceptual framework: a problem of incentives in a segmented health system

The poor and vulnerable

The non-poor formal sector

The non-poor informal sector

Health-related incentives to mis-represent income and qualify as poor

Health-related incentives to exit formal sector and become informal

Adverse selection

Benefits packageBenefits package

Benefits package

Premium

High administrative collection costs

Ser

vice

s

Ser

vice

s

Ser

vice

s

Low enrollment

What should be the benefits package for the

informal sector?

What should be the premium / How should

it be financed?

7

COUNTRY AND REGION CASES

8

Community Based Health Insurance (CBHI)

• In Africa and Asia, CBHI has advanced

objectives of improved financial protection and

accessibility.

• Yet Scaling up of CBHI has been slow and

population coverage remains low, excepting

Rwanda and Ghana.

• Enrolment mostly voluntary, leading to adverse

selection.

• CBHI not an effective solution to the problem.

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China

• Three separate health insurance schemes.

• Improved accessibility

• Some improvements in health status.

• Not yet improvement in financial protection

Formal sector urban workersFormal sector urban workersRural residents

Children, students, elderly people without previous employment, informal sector workers, and

migrants (in some cities)

Urban Resident Basic Medical Insurance

(URBMI)

New Rural Cooperative Medical Scheme

(NRCMS)

Urban Employee Basic Medical Insurance

(UEBMI)

Benefits Contributions

10

China

Target population

UEBMIa URBMIb NRCMSc

Formal sector urban workers

Informal urban workers, children, elderly, etc. Rural residents

Year 2008 2010 2008 2010 2008 2010Risk-pooling unit City City City City County CountyEnrollment,(%) 80.7 92.4 63.8 92.9 90.0 96.6Total premium per person (¥) 1,443 1,559 131 138 96 157Government subsidy per person (¥) 0 0 80 120 (200 in

2011) 80 120 (200 in 2011)

Central government contribution (¥) 0 0 40 60 (100 in

2011) 80 60 (100 in 2011)

Individual contribution 2–3% of salary

2–3% of salary

Employer contribution†6–8% of

salary (about ¥1,483–1,977)

6–8% of salary (about

¥1,483–1,977)

0 0 0 0

Benefit design

Inpatient reimbursement rate (%) 67.0 68.2 43.8 47.9 37.8 43.9

Counties or cities covering general outpatient care (%)

Savings accounts

Savings accounts 12.5 57.5 29.1 78.8

Counties or cities covering outpatient care for major and chronic disease (%)

Savings accounts

Savings accounts 61.6 82.7 63.0 89.4

Total reimbursement ceiling n.a.6 times average

wagen.a.

6 times disposable

incomen.a.

6 times farmers’ income

High enrollment

Different premiums

Government subsidizationDifferent benefits

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Brazil

• 1988: 40% of population in informal sector

• 1988: Shift from Social Health Insurance to National Health System.

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Dominican Republic

• ISWs = 57% of labor force.• Family Health Insurance Law 87-01 (2001), created three

regimes with coverage for entire family:• Contributory Regime (CR) for formal sector workers• Contributory Subsidized Regime (CSR) for ISW• Subsidized Regime (SR) for the poor.

• 3 regimes with same benefits, but only CR with public providers.• CSR scheme not yet implemented.

Poor (21%)

Subsidized regime

ISW (48%)

Semi-Contributory Regime

Formal sector workers (27%)

Contributory Regime

Same benefit package Same benefit package Same benefit package

Benefits Contributions

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Dominican Republic• About 10% of salary for health (employee 30%, employer 70%) with cap.• ISWs contribute % of minimum wage; gov. to subsidize employer’s % as in CR. • Beneficiary identification system in place to identify the poor who join the SR.• Many of the poor ISW already covered by the SR (21% of pop.); CR covers

27% of pop.; 48% of pop. already covered by Family Health Insurance.• Obstacle in implementing CSR for ISW: difficulties in collection of contributions. • Proposed solution:

– End CSR– All poor ISW in SR– End of gov. premium subsidies for high income ISWs, who would then belong to the CR.

Poor (21%)

Subsidized regime

ISWs (48%)

Semi-Contributory Regime

Formal sector workers (27%)

Contributory Regime

Same benefit package Same benefit package Same benefit package

Benefits Contributions

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Chile

• ISWs = 1/3 of labor force.

• Chile’s relies on SHI and has reached UHC with two-tiered health system:

o Large public insurer Fonasa covers 80% of Chileans.o 5 private insurers known as Isapres cover another

17%.o Remaining population covered by Armed Forces or

other systems.

• Enrolment in SHI: contribution of 7% of his/her salary or income to either Fonasa or an Isapre.

• The indigent can get coverage from Fonasa (but not from Isapres) without making any contribution.

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IsapresNational Health Fund (Fonasa)

Chile• SHI system with all having the right to same minimum benefits package with

standardized coverage for 80 priority diseases.

Poor (26%) ISW & FSW (47%) Formal sector workers (27%)

Fonasa Subsidized

regime

Fonasa Contributory Regime Isapre Contributory Regime

AUGE benefits package

AUGE benefits packageAUGE benefits

package

Additional non-guaranteed benefitsAdditional non-

guaranteed benefits

Vouchers for private sector care

Additional guaranteed

contractual benefits

Benefits Contributions

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Chile

• 2010: 36% of Fonasa beneficiaries classified as indigent.

• Fraud reduction by Fonasa: 10% of its indigent affiliates were ISWs under-reporting income.

• To join Fonasa, independent workers to demonstrate contributions to pension fund in 6 of last 12 months.

• 2018 on: all dependent and independent workers legally obligated to contribute to the pension system, and other social security benefits; total contribution to SHI to represent 21% of worker’s declared income.

• Isapre beneficiaries seeking care from public hospital are electronically identified and either denied care or the hospital bills the respective Isapre.

• Individuals w/o coverage seldom denied care in public hospitals; encouraged to join Fonasa.

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Colombia

• Country has SHI • 1994: 2 regimes, contributory regime (CR) & subsidized regime

(SR).• Initially 2 different benefits packages, smaller for SR, larger for CR.• Original plan: 2 benefit packages would become equal in 2000.• Targeting system for the poor through means test.• Significant evasion and elusion of contributions.• Reluctance of ISWs to enroll.

PoorSubsidized regime

ISW & FSWsContributory Regime

Smaller benefit packageLarger benefit package

Benefits Contributions

18

Colombia

• Country has SHI. • 1994: 2 regimes, contributory regime (CR) & subsidized regime

(SR).• Initially 2 different benefits packages, smaller for SR, larger for CR.• Original plan: 2 benefit packages would become equal in 2000.• Targeting system for the poor through means test.• Significant evasion and elusion of contributions.• Reluctance of ISWs to enroll.

PoorSubsidized regime

ISW & FSWsContributory Regime

Smaller benefit packageLarger benefit package

Benefits Contributions

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Colombia

• Recently, to reduce evasion and elusion, health payroll contribution was linked to pension payroll contribution.

• But current president declared that both benefit packages will become equal.

PoorSubsidized regime

ISW & FSWsContributory Regime

Smaller benefit packageLarger benefit package

Benefits Contributions

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Vietnam• Informality very high in Vietnam: 75% of 46 million workers are ISW.

• Health Insurance Law of 2008 mandates enrolment for all citizens with SHI, Vietnam Social Security.

• The 2008 Law envisioned that farmers would have SHI coverage by 2012 and remaining groups of the informal sector by 2014.

• To promote enrolment in SHI:

o Some groups, including the poor, minority ethnic groups, and households living in disadvantaged areas are not required to make any contribution to SHI.

o Government subsidizes 70% of a flat premium for the near poor and 30% for medium income farmers. High income farmers are required to contribute the full premium.

• While SHI beneficiaries can use both public and private providers, public providers are dominant in Vietnam (e.g., 95% of all hospital beds are public).

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Vietnam• ISWs and formal sector workers with SHI coverage have the

same benefit package and official level of copayment (20% of health care cost). Copayment for the poor is only 5%

• There is no ceiling for copayments by SHI beneficiaries

• By 2012, about 60% of ISWs were covered by SHI.

• Problems:

• Low quality of public primary health care network discourages

enrolment in SHI by some ISWs.

• The 70% premium seems to constitute a financial barrier for

enrolment for the near poor.

• SHI confers limited financial protection because of a lack of ceiling for

copayments and also because public providers demand high informal

payments.

22Source: Tram Van Tien (2012) Social Health Insurance in Vietnam: WBI Flagship Course.

Providers

Beneficiaries

National Health Insurance Authority

(NHIA)

National Health Insurance Scheme

(NHIS)

National Treasury

ISWs

Exempt individuals(Adults > 70 years; children < 18 years; pensioners; the indigent; pregnant women)

Formal sector workers and their dependents affiliated

with SSNIT

2.5% of VAT

2.5% of

VAT

Social Security and National Insurance

Trust (SSNIT)

SSNIT contributions

Government annual

budgetary allocations

2.5% of SSNIT contributions

Premium

Surplus Fund managed by NHIC

Donors and other contributors

Public (MOH) health care providers

Private health care providers

Health care services

Payments

Accruals from surplus fund’s

investments

Contributions

National Treasury

Donors and other contributors

Ghana

Only a small fraction of ISWs have joined

NHIS

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Conclusions• No country has come up with effective ways of covering ISW while at the

same time collecting contributions from them.

• Large amounts of public subsidies are required to enroll/cover ISWs.

• A solution seems to be the adoption of smaller benefits package for ISWs than for FSWs:o Otherwise incentives to become informal arise;o Also, government cannot subsidize a large benefit package for so many people.

• Benefit package for the poor often smaller than for ISWs to prevent ISWs from attempting to pass as poor.

• Strong beneficiary identification systems required.

• Mechanisms to keep the non-poor from getting free health care in public facilities must be developed.

• Methods for linking health contributions to other social contributions seem to be effective in reducing evasion and elusion.

• Covering ISWs with meaningful benefit package will take decades and vast amounts of public subsidies.

• Do not expect to collect much in the form of ISWs contributions to health.24

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