This book breaks new ground in the ongoing debate about health finance and financial protection from the costs of health care. The evidence and discussion support the need to consider financial protection, in addition to health status, as a policy objective when setting priorities for health systems.

This book reviews the Latin American experience with health reform in the last 20 years and the fundamentals of health system financing, using new evidence to show the magnitude and mechanisms that determine the impoverishing effects of health events (diseases, accidents, and those of the life cycle). It provides options for policy makers on how to protect, and help household to protect themselves, against this impoverishment.

he authors use empirical evidence from six case studies commissioned for this report, on Argentina, Chile, Colombia, Ecuador, Honduras, and Mexico. This book provides policy makers with a solid conceptual basis for decisions on the contents of mandatory health insurance benefit packages, choices of financing mechanisms, and the roles of public policy in this field.

It provides an in-depth analysis of, and organizational alternatives for, risk pooling and health insurance for financial protection. It analyzes the urgent need to extend risk pooling to the informal sector, the challenges for current social insurance arrangements, and options for policy makers to effectively extend risk pooling to the informal sector.

About the Authors:

He was the senior health systems specialist for Social Security Policy and Development at the International Labor Organization. Previously, he was founder and CEO of the Latin American Center for Health Systems Research (CLAISS) in Santiago, Chile; national director of the Chilean National Health Fund (FONASA); health systems specialist at the World Bank in Washington, D.C.; and chief of the International Financing Division and of the Health Sector Reform Program at the Chilean Ministry of Health.

Dr. Baeza is a medical doctor from the University of Chile and holds a Master of Public Health degree from Johns Hopkins University and a degree in economics of social policy from Instituto Latinoamericano de Doctrina y Estudios Sociales.

Truman G. Packard is a senior economist in the Latin America and the Caribbean Region at the World Bank. He began work on pensions in 1995, when he worked with World Bank staff in Mexico to develop adjustment operations needed to support pension reform. Since then he has participated in analytical and lending assistance to support both pension reform and broader efforts to strengthen social insurance. His research focuses on how pensions and social insurance affect the efficiency of labor markets and incentives to save. He holds a Ph.D. in economics from the University of Oxford.

Download Beyond survival : protecting households from health shocks in Latin America

PDF format, 1.4MB, 196Pages.

Executive Summary:

Beyond Survival: Protecting Households from Health Shocks in Latin America breaks new ground in the ongoing debate about health finance and financial protection from the costs of health care. It is based on a review of the little that has been written on the topic of financial protection and the risk of poverty from health shocks, and on empirical evidence from six case studies commissioned for this report: Argentina, Chile, Colombia, Ecuador, Honduras, and Mexico (published separately).

Financial protection is defined as protecting households from impoverishment as a result of health shocks. For policy makers in Latin America and the Caribbean (LAC), Beyond Survival carries five main messages:

• Health care costs—insurance contributions as well as out-of-pocket payments—and loss of income as a consequence of sickness can impoverish households and plunge the already poor into a transgenerational cycle of abject poverty. This reflects a lack of access to effective instruments for income protection during sickness, and protection from the risks of catastrophic health costs, risk pooling. It is manifested in the disproportionately high part of average income and health care costs financed outof-pocket in the LAC region relative to other parts of the world.

• People need protection from the potentially ruinous costs of health care and loss of income due to sickness. These costs rival losses of income from unemployment as a cause of poverty.

• The focus of risk pooling in LAC has been mostly on formally employed, salaried workers who are covered by mandatory public and quasi-public risk-pooling mechanisms. As long as this situation persists, governments in LAC will be hard pressed to ensure effective coverage beyond this comparatively well-off minority.

• The constitutions of most LAC countries recognize citizens’ basic right to health, but say little about the means of enforcing this right.

Health care coverage can be expanded through increasing participation in risk pooling, by defining universal explicit rights to a benefits package (BP) of specified insurable events, and by better targeting subsidies to public health goods (such as vaccinations) to the poor, the aged, the indigent, and other disadvantaged groups.

• Extending risk pooling to the large and growing informal labor sector is a priority in LAC. This means inventing contribution mechanisms for nonpoor households to participate in risk pooling that are not linked to work place or labor status. ...

Visit Beyond Survival World Bank's Web Site

Forward:

Despite nearly two decades of bold structural reform in the health sector, households in the Latin America and Caribbean region are still overexposed to health shocks that can force them to cut consumption of other basic services and goods and even result in destitution. Around the world, including in Latin America, health care costs are rising. Health shocks—such as sickness, accidents, or normal life-cycle events like such as age—sap the health of individuals and can impoverish their households.

Besides treatment costs, households bear the cost of productive time lost from work, as well as opportunity costs due to days spent taking care of ill family members. The combined costs and loss of income of a serious illness or injury can force individuals and households into poverty. For those who are already poor, these costs perpetuate poverty.

Beyond Survival: Protecting Households from Health Shocks in Latin America breaks new ground in the ongoing debate about health finance and financial protection from the costs of health care. This book reviews existing and new evidence on the mechanisms and magnitude of impoverishing effects of health events and the importance of public policy to prevent such impoverishment.

The evidence and discussion in Beyond Survival is intended to persuade policy makers to weigh both health status and financial protection objectives when setting priorities for their health systems. The balance struck between the two goals is ultimately a societal decision based mostly on country context and preferences. Low-income/high mortality countries will most likely focus on health status gains. Higher income countries, which in most cases in Latin America and the Caribbean have achieved important gains in the health status of the population, would be well advised to increase somewhat their focus on financial protection. Indeed, health shocks are one of the most frequent reasons for households in the lower-income quintiles, that are not already poor, to fall into poverty as a consequence of both high out-of-pocket expenditures and lost income.

Applying a classical insurance framework to examine household behavior in the face of health shocks, the authors conclude that Latin American households are over-burdened with out-of-pocket spending and lack sufficient risk pooling. Furthermore, social health insurance in the region—a prevalent form of risk pooling—too often covers all health events, regardless of their nature (that is, whether they are “insurable” or not). But since social health insurance covers all events, it cannot cover all households.

The authors argue that if the instruments governments provide to help households manage the financial losses from health shocks were correctly aligned to the nature of those losses, health finance systems would be better able to provide fiscally sustainable financial protection to a greater share of the population. Correctly aligned instruments would free up resources to provide subsidies for people who cannot afford to pay for contributory forms of risk-pooling or illness-prevention activities.

Including the poor, those at high risk and especially the fast-growing group of self-employed and informal workers in effective health riskpooling arrangements pose an awesome challenge for policy makers in Latin America. To meet this challenge in the current context—where contributory social insurance coexists with “noncontributory” national health services financed from general revenue in almost every Latin American country—policy makers will need differentiated strategies for three distinct household groups: the nonpoor, whose contribution capacity is above the average cost of the health benefits package for most or all of their life cycle; the poor, whose contribution capacity rarely reaches the average cost of the package at any time in their life cycle; and the high risk, whose contribution was above the average cost of the package for much of their lives but who reach an age (or health risk) for which the average cost of the package outstrips their capacity to contribute.

The authors conclude that the first step toward extending fiscally sustainable coverage against health shocks is to correctly define a benefits package of coverage of insurable health events. To provide effective financial protection, the package has to be concentrated around impoverishing events.

Once such a financially viable benefits package is defined, policy makers have several options to increase participation of self-employed and informal nonpoor workers: to facilitate—through regulation, innovations in enrollment practices, or both—participation in contributory health insurance; to improve enforcement of mandatory participation and strengthen evasion control; to increase the effectiveness of means testing for access to free, publicly subsidized health services; and to reduce the contribution–benefits gap.

Furthermore, the authors propose a challenging long-term reform agenda. Their long-term vision is a system in which contribution-benefits gaps are reduced through a combination of (1) delinking risk-pool financing from labor status; (2) reducing costs of participation in contributory health risk pooling, by, for example, unbundling participation in health insurance from other benefits that informal workers are unlikely to get; and (3) increasing the perceived benefits of participation (e.g., raising the quality of health services). Perhaps the most challenging part of such a proposed agenda refers to the delinking risk-pooling financing from labor market status, as it would imply gradually reducing and eventually replacing payroll-tax financing with financing from general tax revenue. Given their present fiscal weakness, for most Latin American countries such a shift would require important tax reforms over the long run and a highly complex transition.

Guillermo Perry
Chief Economist for Latin America and the Caribbean
The World Bank
June 2006

Latin American Development Forum Series:

This series was created in 2003 to promote, debate, and disseminate information and analysis and convey the excitement and complexity of the most topical issues in economic and social development in Latin America and the Caribbean. It is sponsored by the Inter-American Development Bank, the United Nations Economic Commission for Latin America and the Caribbean, and the World Bank. The manuscripts chosen for publication represent the highest quality in each institution’s research and activity output and have been selected for their relevance to the academic community, policy makers, researchers, and interested readers.

Advisory Committee Members

Inés Bustillo, Director, Washington Office, Economic Commission for Latin America and the Caribbean, United Nations
Guillermo Calvo, Chief Economist, Inter-American Development Bank
José Luis Guasch, Regional Adviser, Latin America and the Caribbean Region, World Bank
Steven Haber, A. A. and Jeanne Welch Milligan Professor, Department of Political Science, Stanford University; Peter and Helen Bing Senior Fellow, the Hoover Institution
Eduardo Lora, Principal Adviser, Research Department, Inter-American Development Bank
José Luis Machinea, Executive Secretary, Economic Commission for Latin America and the Caribbean, United Nations
Guillermo E. Perry, Chief Economist, Latin America and the Caribbean Region, World Bank
Luis Servén, Research Manager, Development Economics Vice Presidency, World Bank

Comments (0)

Name

Email

Comment

smaller | bigger

Add Comment