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Bridging the Gap in Coverage

This Op Ed presents arguments for and against the emergance of private health insurance markets in lower- and middle-income countries.

What is the case for or against private voluntary health insurance?

Friend or Foe

The world of technical experts and policy wonks is divided into two camps. One camp vilifies private voluntary health insurance as an evil to be avoided at any cost. Its constituency claims that such insurance leads to overconsumption of care, cost escalation, diversion of scarce resources from the poor, cream skimming, adverse selection, moral hazard, and an inequitable, U.S.-styled health care system.

But for others, private insurance is the answer to many of the intractable problems associated with government-run health services. These experts claim that private insurance gives people choice and access to care when needed without long waiting lists, poor care, and rudeness at the hands of public providers employed by Ministries of Health. Proponents further assert that many of the problems observed in private health insurance are equally true for social health insurance and subsidized or free access to government-financed national health services.

The high out-of-pocket expenditure common in many low-income countries provides a “prima facie” case that such insurance is both desirable and affordable (figure 1). Not surprisingly, demand for community- based and private voluntary health insurance is strong at low-income levels, even among the rural poor, when offered at relatively moderate loading cost (losses due to fraud and abuse, profit, and administrative costs). 

Blind Faith and Naive Beliefs

Private voluntary health insurance presents both opportunities and threats to health care systems in developing countries. Blind faith in the benevolent and omnipotent role of governments is little better than a naive belief in the power of the invisible hand of private health insurance markets.

In theory, private voluntary health insurance may have flaws that make it seem inferior to government insurance. In practice, it may be a better alternative -at least in the short run-than to waiting for governments in low-income countries to strengthen their administrative and taxation capacity that would be needed for a viable public option to work.

If managed carefully and adapted to local needs and preferences, private voluntary health insurance can play a valuable role in contributing to the financing of health care in lower-income countries. As seen in Ghana, Thailand, and Singapore, if coupled with premium subsidies, such insurance does not have to exclude the poor.

However, opening up markets for private health insurance without an appropriate regulatory framework can widen inequalities in access to health care. It may contribute to cost escalation, deterioration in public services, reduction in the provision of preventive health care, and a widening of the rich-poor divide.

There is no shortage of personal anecdotes to fan the fire on both sides of this debate. Some people may have been refused coverage by an insurance plan or had to pay escalating premiums. Others may have seen a sick relative wait for hours in the emergency room of a public hospital only be sent back home without treatment. As during the recent U.S. health care debates, fear mongers often have a more receptive audience than reformers.

Considering these risks, the crucial challenge for policy makers is to develop a regulatory framework that is adapted to a country’s institutional capacities. At the same time, it should set rules and standards that allow private voluntary health insurance to operate efficiently and develop in a positive way so that it contributes to overall development objectives.

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