Assessing financing mechanisms for their ability to deliver an insurance function Ministry of Health and Family Welfare Government of the People's Republic of Bangladesh Assessing financing mechanisms for their ability to deliver an insurance function Research Note 23 June 2007 Author: Tim Ensor gtzHealth Economics Unit (HEU) 1Assessing financing mechanisms for their ability to deliver an insurance function Assessing financing mechanisms for their ability to deliver an insurance function HEU Research Note 23 J une 2007 Dr. Tim Ensor Dr. Md. Anwar Hossain Munshi, Joint Chief (Joint Secretary) Health Economics Unit Ministry of Health and Family Welfare Government of the Peoples Republic of Bangladesh Ansary Bhaban (3rd Floor) 14/2 Topkhana Road Dhaka 1000, Bangladesh Tel: +88 02 7169832, 7169835 Fax + 88 02 7169831 Email: info@heubangladesh.org Website: www.heubangladesh.org 2Assessing financing mechanisms for their ability to deliver an insurance function Past papers prepared by the HEU Research papers Working papers report on recent research carried out by, or in collaboration with, the Health Economics Unit. The research may be based upon new primary data or upon the fresh analysis of secondary data. 1.A public expenditure review of the health and population sectors, September 1995 2.An analysis of recurrent costs in GOB health and population facilities, J uly 1995 3.Balancing future resources and expenditures in the GOB health and population sectors, J anuary 1996 4.Mobilising resources through hospital user fees in Bangladesh:a report on quality and ability to pay, August 1996 5.An assessment of the flow of funds in the health and population sector in Bangladesh, J anuary 1997 6.Myemensingh Medical College Hospital:financial analysis (FY1994 -5), J uly 1997 7.Costanalysisofcaesareansectiondeliveriesinpublic,privateandNGOfacilitiesin Bangladesh, March 19988.Cost-effectivenessanalysisofcaesareansectiondeliveriesinpublic,privateand NGO facilities, April 1998 9.Resource envelope for the 5th health and population project: preliminary estimates, May 1997 10.UnofficialfeesathealthcarefacilitiesinBangladesh:price,equityandinstitutional issues, September 1997 11aCost benefit analysis of reducing lead emissions from vehicles in Bangladesh, J anuary 1998. 11b.Health and technical cost benefit analysis of options for reducing lead emissions from motor vehicles in Bangladesh, J anuary 1998 12. Economic aspects of human resource development in Health and Family Planning: flow of funds, September 1998 13.Economic aspects of human resource development in Health and Family Planning:dual job holding practitioners, September 1998 14.Economic aspects of human resource development in Health and Family Planning: Costs of Education and Training, September 1998.15.A survey of private medical clinics in Bangladesh, September 1998. 16. Bangladesh Facility Efficiency Survey, November 1999 17.Public Expenditure Review of the Health and Population Sector, 1998/9 18. Resource allocation in the health sector of Bangladesh:a case study of Medical and Surgical Requisites, February 2000 19.Public Expenditure Review of the Health and Population Sector, 1999/2000 20. Calculation of total unit cost for diarrhoeal management at district hospital and thana 21.Geographic resource allocation in Bangladesh, March 2001. 3Assessing financing mechanisms for their ability to deliver an insurance function 22.Who benefits from public health expenditure?, March 2001 23.Financing the health and population sector resource projections, May 2001. 24. Funding health care in Bangladesh assessing the impact of new and existing financing, May 2001 25The current costs of essential health services - a study of government facilities, J une 2001. 26.Projecting the cost of the Essential Service Package, J une 2001. 27.Study on Tuberculosis and the poor, J une 2001 28.Study on Public and Private Hospital Provision of the ESP and Non-ESP Services Efficiency, J une 2002 29Public Expenditure Review (2000/01) of the Health and Population Sector Programme, October 2001. 30. Public Health Services Utilisation Study, November 2003 31. National Health Accounts 1996 -2001, J une 2004 32. Public Expenditure Review (PER) 2003-04 Health Nutrition and Population Sector Program, J une 2006. Research Notes Research notes are prepared by staff of the Health Economics Unit or other collaborating units. The objective is to raise important research questions that might later be researched in more depth. The series includes research concept notes, structured literature reviews and surveys of current research in a particular area. 3.Draft terms of reference and background briefing document:a pilot programme for resource mobilization through user fees in the MOFHW, Bangladesh, September 19954.Key issues in costing an essential package of health services for Bangladesh, May 1996 5.User fees, self-selection and the poor in Bangladesh, August 1996 6.An agenda for health economics research concerning antibiotics usage standards in developing countries:the case of Bangladesh, J uly 1996 7.Experiences with resource mobilisation in Bangladesh:issues and options, J une 1997 8.A pre-feasibility analysis of social health insurance in rural Bangladesh:the NGO model, J une 1997 9.Resource envelope for the 5th health and population project: preliminary estimates, May 1997 10.Resource envelope estimation for HAPP5, November 1997. 11.Health insurance for civil servants of Bangladesh, J anuary 1998. 12.Private medical clinics in Bangladesh, February 1998 13. Development of a Health Economics Database Archive for Bangladesh, September 1998. 14. Pricing health services: where to now?, November 1999. 4Assessing financing mechanisms for their ability to deliver an insurance function 15. Costing the ESP: overview of previous studies and current research needs, December 1999. 16.Economic indicators for monitoring the HPSP, February 2000 17.The public-private mix in health care in Bangladesh, May 2000 18.Covering the population: extending health insurance in Bangladesh19.Health insurance in South-East Asia and lessons for Bangladesh, J uly 2000 20.Strategies for developing health insurance in Bangladesh, October 2000 21. Towards a poverty strategy for the health sector, February 2001 22. Proposal to Ministry of Finance for local utilisation of user fee revenue on a pilot basis within HPSP, November 2000 OccasionalPapers and other publications Occasional papers (OPs) are prepared by members of the HEUprincipally for internal use. OPs mayalsobepreparedforspecialpurposessuchastheHPSP/HNPSPAnnualProgramme Review. Some OPs are later edited and issued as research notes or papers. Also available: Public-private mix for health sector development: proceedings of the fourth annual conference, 25-26th J uly 1999 Bangladesh National Health Accounts 1996/97, Final report, Data International/ Health Economics Unit. Operational Mechanism forSocialHealthInsuranceinPovertyProneSub-districtofBangladesh: DevelopmentofTools&Guidelines, March 2005. The Development of Proposed Alternative Models for Social Health Insurance (SHI) Schemes in Bangladesh for Different Populations, October 2005. 5Assessing financing mechanisms for their ability to deliver an insurance function Contents Contents.......................................................................................................................... 1 Abstract........................................................................................................................... 8 Introduction..................................................................................................................... 9 The insurance function.................................................................................................... 9 International priorities in low income countries........................................................... 10 Assessing the potential of financing systems to provide risk-protection...................... 12 Discussion: a way forward............................................................................................ 19 References..................................................................................................................... 20 6Assessing financing mechanisms for their ability to deliver an insurance function Abbreviations APIRAnnual Programme Implementation Report APRAnnual Programme Review ESDEssential Services Delivery ESPEssential Services Package GOBI-FFFGrowth monitoring, ORS, breast feeding, immunization - food production, female literacy, family planningHNPSPHealth, Nutrition and Population Sector Programme HPSPHealth & Population Sector Programme HEUHealth Economics Unit IMCIIntegrated Management of Childhood Illness MOHFWMinistry of Health and Family Welfare NGONon Government Organisation OECDOrganisation for Economic Cooperation and Development PERPublic Expenditure Review STISexually Transmitted Illness 7Assessing financing mechanisms for their ability to deliver an insurance function Abstract Although mentioned as an objective of HNPSP, funding for catastrophic health care risks remains extremely low in Bangladesh. Public funding focuses predominantly on primary care led essential services delivery. At the same time there remains considerable interest in alternative financing mechanisms such as vouchers and other demand side mechanisms although these are largely not suited to the financing of uncertain, catastrophic services. The extent of social and micro/community insurance remains small. Although there are an increasing number of micro-insurance schemes, the proportion of the population covered remains low. Social insurance has largely not developed although more rapid growth and an increased industrial sector means that there may be some potential for exploring ways of extending more risk protection to the formal sector using such mechanisms. In considering ways of increasing the level of financial pooling it is worthwhile also examining how the existing public sector might be enhanced to provide a greater level of protection from catastrophic costs. The hospital sector in Bangladesh remains small and largely unrelated to population need. The policy agenda for financing of the sector should explore how resource allocation, management and investment in this sector could be enhanced to provide for a greater proportion of catastrophic needs. Keywords: health insurance, catastrophic risk, financing, risk pooling 8Assessing financing mechanisms for their ability to deliver an insurance function Introduction The aim of this note is to stimulate the debate about what type of risk pooling could and should be used to reduce the consequences of catastrophic spending due to ill health in Bangladesh. The note is written in full knowledge that this question has been asked many times over the last 10 or more years including by the HEU; see (Ensor & Dave Sen, 2000; HEU, 1997, , 1998, , 2000; Hoque, 2005; K.M. MortuzaAli, 2005). Debating whether current health financing mechanisms are adequate is a natural part of the long term policy cycle. Bangladeshi economic growth rates are quite high, there are projections of considerable urbanisation of over the next 20 years and the formal sector is expanding. In addition it may be helpful to view the issue not solely from the perspective of mechanisms how can the country encourage the extension of insurance systems? - and more from the side of the risk-reducing function. Taking this perspective forces us to consider how this risk-reducing function might be enhanced within the existing publicly financed system as well as by developing new mechanisms for risk reduction.The insurance function Discussions of health financing methods frequently proceed by focusing on tools to provide insurance. Yet a point made forcefully by Kutzin is the importance of first focusing on the main functions or objectives of health care financing and only after this to assess the extent to which different financing tools deliver on these objectives (Kutzin, 2001). Four functions of financing systems are described: resource generation providing adequate funding for individual and population needs at minimal administrative cost,pooling of funds funds provided by contributors and placed into a pool and used by individuals when they have need of health care,purchasing selecting services that are of most benefit to individuals for the funds expendedpaying providers using mechanisms for reimbursing the providers of care that encourage efficient and high quality services Insurance of any time is principally required in order to mitigate the negative financial consequences of uncertainty. Ultimately these financial consequences may affect a households ability to secure good education, health and lifestyle for its members or require it to take action to secure additional resources such as selling productive assets or taking out loans that in themselves can increase the likelihood of future impoverishment. It follows from this that adequate insurance is associated with several financing functions. A fundamental principle of risk mitigation is that contributions collected from members are pooled so that when individuals require benefits that exceed their individual means they can draw from this pool to finance their own care. Adequate resource generation obtained at low administrative cost is also important community insurance systems are often criticised for taking too large a slice of income for 9Assessing financing mechanisms for their ability to deliver an insurance function administration. Provider payment mechanisms have been shown to be important in inducing behaviour that delivers good quality services. A further implication of the insurance requirement, however, is that services being obtained will have a substantial negative impact on household income. In turn this suggests that services being purchased are those that would represent a substantial burden if brought directly by individuals and households. The important costs to households do vary considerably with context. The direct service costs (supply side) of providing services at facilities and by medical practitioners will usually be important. Yet there is also much evidence that costs that affect the consumers willingness and ability to reach treatment, costs such as transport, attendants costs and lost productioncan also represent a substantial burden to households (Ensor & Cooper, 2004). These are not usually covered by traditional insurance systems although they are increasingly being recognised in the design of new financing mechanisms.International priorities in low income countries In recent years much of the emphasis of governments and development partners in financing health care has been to ensure the purchase of cost-effective services and to target these services primarily at the poor. This approach began with prioritisation initiatives such as GOBI-FFF1 continued with the high profile essential service package described in the 1993 World Development Report and has now been replicated in many countries that have planned, costed and implemented essential, minimum or basic packages of services (Pearson, 2000; Walt & Rifkin, 1988; World Bank, 1993). Bangladesh began implementing its own Essential Service Package (ESP) during HPSPand has continued the approach with Essential Services Delivery (ESD) under HPNSP (GOB, 1998; Ministry of Health and Family Welfare, 2005). Emphasis on the poor begins from much quoted research that suggests that despite its ambitions, public health services (and indeed other public services such as education) often do not reach the poorest segment of the population but are captured by the middle and upper (although the very rich often abandon the public sector entirely opting for private services financed from private contributions) income groups (Castro-Leal, Dayton, Demery, & Mehra, 1999; Demery, 2000). The reasons for this are not difficult to uncover and include the near universal fact that the best facilities are usually predominantly situated in areas which are relatively wealthy and the payments both official and unofficial - that must be made once at a facility together with more subtle barriers such as lack of information on where to seek care and informal prioritisation of influential and wealthy patients once in a facility. The findings have led to a much greater emphasis being placed on targeting services to poorer populations. In Bangladesh during HPSP this emphasis was based on a policy of targeting more resources towards facilities at Upazila and below on the basis of evidence that these facilities were and are used predominantly by lower income groups. Under HNPSP this 1 Growth monitoring, ORS, breast feeding, immunization (GOBI) food production, female literacy, family planning (FFF) package Introduced by UNICEF. 10Assessing financing mechanisms for their ability to deliver an insurance function policy has been adjusted with greater emphasis given to targeting not only facilities and services that are used by the poor but also to providing more resources to poorer households. In resource and implementation terms the programme remains largely focused on a targeted delivery strategy that predominantly emphasises essential services. An essential services delivery strategy targeted at the poor is undoubtedly a vital tool for raising the level of health and reducing disease in the population. Essential packages help to emphasise the resourcing of services that should be provided at zero or very low cost to the entire population. A targeting strategy helps to ensure that monitoring indicators do not just look at population averages but focus also on the sometimes enormous disparities between the poorest and richest. Analysis of Demographic and Health Surveys (DHS), for example, have shown that across the countries where the survey is done the difference in infant mortality between the richest and poorest wealth quintile is more than two fold2. For some measures of utilisation the gap is even greater: the difference between rich and poor in the use of skilled attendance, for example, at delivery differs by a factor more than 5 across low and middle income countries. In Bangladesh studies continue to show a disparity between utilisation and resulting benefits incidence of the rich compared to the poor (Al-Sabir, Sultana, Bhadra, & Rahman, 2006; HEU/Research Training and Management International, 2006). At the same time targeted ESPs are not necessarily a good way of ensuring that an insurance function develops within the sector. There are two issues. Firstly, the type of services included in an typical ESP- treatment for malaria, tuberculosis, IMCI etc although extremely important from a health point of view are not necessarily the most important in terms of financial risk to the household. The diseases themselves, if not alleviated, have the potential to push a household into poverty but on their own they are not that expensive to treat. There are of course exceptions: complications of pregnancy can certainly prove both unpredictable and costly to treat and often far exceed a households financial capacity (J o Borghi, Ensor, Somanathan, Lissner, & Mills, 2006). Yet in the majority of cases costs will not cripple a family. The case for financing treatment as part of a package rests far more on the importance of dealing with externalities, overcoming information barriers and ensuring that quality, cost-effective services are provided through recognised outlets as a way of preventing more serious and costly conditions and complications. A second issue is the specific targeting of the poor, particularly targeting of individual households. There is plenty of evidence to suggest that individual targeting in health is usually not effective (Bitran & Giedion, 2003; Weiss, 2006). Methods used can be crude and administratively costly while the effect is often to miss many of those in need while the influential non-poor are often able to capture benefits. Yet even if these problems are avoided, concentrating only on those already in poverty, may not be sufficient in ensuring an insurance function. One of the key objectives of insurance is that it is meant to protect 2 http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/EXTHEALTHNUTRITIONANDPOPULATION/EXTPAH/0,,contentMDK:20216946~menuPK:400482~pagePK:148956~piPK:216618~theSitePK:400476,00.html 11Assessing financing mechanisms for their ability to deliver an insurance function households from being pushed into poverty. Although poverty indices sometimes suggest otherwise, poverty is a dynamic phenomena with households slipping in and out of poverty as a result of seasonal harvests, changes in household dependency and un-expectantly large expenditures (Scoones, 1998). Some health expenditures are themselves enough to push households into poverty. A study in Indonesia, for example, found that without financial assistance for a scheme aimed at the poor around 13 percent of a sample of women requiring emergency obstetric care would have been pushed into poverty (see figure) . This is in contrast an estimated 6 percent of the sample that already had a household monthly income less than the official poverty line. The lesson from this is clear; if a system is to help protect the population from the financial consequences of ill-health it must target a much larger group than those in lowest income or wealth groups. Figure 1: Pens parade of EOC pre and post household income in Indonesia (Banten Province) -1.00.01.02.03.04.05.0114274053667992105118131144157170183196209222235Cases (poorest to richest)Annual household income (Rp. million)Expenditure/yearPost expenditurePoverty levelPoverty level Higher incomeAssessing the potential of financing systems to provide risk-protection i) Social insurance One common response to a lack of risk-pooling in the health systems of low and middle income countries has been to encourage the development of parallel health insurance schemes. Many OECD countries have systems of universal or near universal coverage provided through social insurance. Social insurance is usually financed largely from an earmarked payroll tax based on both employee and employer contributions calculated as a percentage of earnings. This feature means that such systems are largely proportional although a lower limit or lower contribution for low-earning employees may make the 12Assessing financing mechanisms for their ability to deliver an insurance function system progressive while an upper limit on contributions can render the system regressive. Evidence in Europe suggests that on average social insurance systems are mildly regressive (Wagstaff & Doorslaer, 2000). An upper limit is often imposed to demonstrate that the contribution is for a defined service rather than just another tax. A functioning social insurance mechanism depends on the ability to collect a mandated (compulsory) contribution for health care from the payroll that entitles those contributing to a defined package of services. As such it is mainly suited to the formal sector. Some countries also encourage voluntary contributions from the self-employed and other workers but this is often not successful. A recent review argued that while social insurance can be successful covering the poor (through subsidies) and the formal sector, it is generally not a good mechanism for covering those in the informal sector (Wagstaff, 2007). Vietnam is a good example of this. Social insurance was developed to cover the formal sector while a system was also introduced for the poor. These systems worked fairly well to cover much of the target population. Voluntary insurance was used to cover the (majority) informal sector, largely farmers and other agricultural or fishery worker. This scheme has failed to develop and numbers in the scheme have only been boosted relatively recently with the extension of the scheme to children through schools (Carrin, Hollmeyer, J ones, Everard, Ron, Savioli et al., 1999).ii) Community or micro insurance Micro or community insurance has been proposed as an alternative in societies where the formal sector is not well established. Community insurance is usually based on the voluntary purchase of an insurance package. Because it is voluntary there is usually limited scope for subsidising the premiums of the poor since substantial cross-subsidy will deter wealthier members from contributing (a type of adverse risk selection the scheme ends up covering only the high risk, low contributing members). It is argued that basing schemes around small communities may increase the likelihood that social relationships will increase the willingness of richer members to contribute voluntarily on behalf of other members of the community. Although the coverage in terms of membership and benefits paid of most community schemes tend to be limited the development of such schemes should not be dismissed lightly. Universal systems in Europe largely developed as a result of the merger of small scale schemes based around workplaces, guilds and farming communities. There is also recent experience of the development of universal coverage through the merger of schemes that include rural community insurance (health card) in Thailand and earlier in South Korea. Recently Ghana has begun a process of extending universal coverage by linking both district NGO based schemes with formal social insurance; Kenya has similar plans. In Bangladesh community insurance has been launched by a number of major NGOs including BRAC and Proshika, Grameen and Gonoshastaya Kendra (GK) (Desmet, Chowdhury, & Islam, 1999). One recent report found that there were around 13 microinsurance schemes operating in the country (Ahmed, Islam, Quashem, & Ahmed, 2006).These schemes have had some success in extending coverage although it is noticeable that coverage has not increased substantially in the last five years. The same 13Assessing financing mechanisms for their ability to deliver an insurance function report found that three of the biggest Grameen, BRAC and Society for Social Services had around 150,000 members while GK enrols perhaps 75,000 households. These are substantial schemes but clearly a very small proportion of the Bangladesh non-formal sector. Several issues arise if community insurance is to provide adequate insurance particularly for poorer groups. In order to ensure affordability it is necessary to obtain funding to subsidise premiums. Some level of government intervention to ensure this subsidy and begin to link schemes may be essential if community insurance is really to attain a substantial level of population coverage. Such government intervention should be approached with care. While the success story of Thailand is often quoted, other less successful, at least in the early stages, examples of government intervention also exist. In relatively successful local pilot schemes were taken over probably too early by national government that then struggled to enrol voluntary contributors at least partly because local features were lost (Ensor, 1995). A system for providing subsidy to the poor implies some mechanism for identifying those that will receive the subsidy. In addition, although community insurance systems may develop to include catastrophic services, they often begin largely as pre-payment cards that permit individuals to spread the cost, particularly of medicines, throughout the year. Extending this to permit proper risk pooling requires that premiums are actuarially calculated to cover larger catastrophic expenses and methods are in place to ensure that the usage of services by members is restricted to prevent bankruptcy. This requires a management capability that may be viable in community schemes run by larger, established NGOs but not immediately practical within micro insurance schemes based around small communities widely encouraged during the 1990s (ILO, 2000). Table 1: Features of health system funding systems Resource generationPoolingTargetingType of services Social insurance (payroll taxes) Funding can be collected at relatively low cost. Usually restricted to the formal sector. Pooling restricted to those contributing - usually the formal sector.Entitlement is based on contribution but since these are income related poorer employees can benefit disproportionately.Usually social insurance is focused largely on curative services including hospitalisation.Community or Micro insurance Funding is voluntary and often collected at relatively high cost (a cost that may be masked by hidden in-kind contributions from donors and NGOs). Total funding available is usually quite small. Extent of pooling is restricted by the need to ensure that members remain in the scheme.Voluntary and usually flat-rate premiums may restrict the opportunities for targeting groups unless a third party source can be found for their contributions Both small/regular primary services and secondary/catastrophic services may be covered. In most cases the former makes up the majority 14Assessing financing mechanisms for their ability to deliver an insurance function Resource generationPoolingTargetingType of services Private insuranceLimted to those volunatarily buying insurance. Pooling is restricted to those choosing to contribute- mostly the relatively wealthy. None - unless there is public purchase of private insurance products.Usually largely focused ion curative services, mostly inpatient and specialist outpatient/diagnostics. Medical savings accounts Tends to be quite limited even in countries where they are well established. Inter-temporal but not interpersonal pooling. Usually restricted to those in formal employment. Limited to the amount in the account - can be linked to catastrophic insurance schemes. VouchersA mechanism not a financing source. Limited since a voucher is usually for a pre-defined service. May allow pooling within treatment groups(e.g. delivery care). Can be targeted at a group or area as required.Usually focused on small predictable services to extend choice and encourage purchase. May include some catastrophic services but then will be better provided through a proper insurance scheme.Conditional cash transfers An allocation mechanism not a financing source. Not a pooling system Can be targeted at a group or area as required.Cash provided to boost regular household income but unlikely to protect against large risks. Conditional services usually important but not catastrophic.Consolidated tax funding Multiple funding sources at relatively low administrative cost. General tax evasion main threat. Pooled funding from taxation. Entitlement based on citizenship or residency. Depends on public priorities for funding.User feesAlthough private payments are ubiquitous, official collection in private facilities can be administratively expensive. Not a pooling system Exemptions may reduce impact on the poor Depends on purchasing power of user. iii) Private insurance Private (commercial) insurance usually assesses individual risk usually determined strongly by past or likely future use of services - as a basis for setting premiums. This mechanism ensures that premiums are not affordable for most people in low income countries. Risk pooling is achieved across those buying insurance. People buying private insurance usually do so to cover secondary, specialist care although insurers may impose limits on the amount that can be claimed in order to reduce their potential losses. In recent years several low & middle income countries have examined how to use private insurance companies as carriers for public financed insurance products. Countries such as Colombia have systems that permit people to opt for private insurance packages rather than the public package. In Georgia, the government is developing a system that will allocate public money to private insurers for hose below the state-determined poverty line 15Assessing financing mechanisms for their ability to deliver an insurance function . The latter represents an extremely bold experiment and there are fears that the state structures will not be adequate to regulate the resulting system.iv) Medical Savings Accounts Medical savings accounts have been developed as a way of encouraging savings for health care. The principal idea is that regular contributions are placed into an individual account that can be used only for the medical care of the individual contributor. They are, therefore, attractive in countries where it is difficult to develop systems of social solidarity. It is no accident that, outside Singapore where savings accounts were pioneered, the main countries to develop widespread systems are China, where individuals are disillusioned with forced solidarity systems such as the commune, and in the USA. It should be noted, however, that savings accounts work best where contributors can easily be transferred from the payroll and where there is a well established technology to make use of the card (electronic cards for adding contributions and deducting expenses have become universal in technology-rich China). Contributions tend only to represent a small fraction of total expenditure even in wealthy Singapore. Savings accounts are really sophisticated pre-payment cards permitting smoothing of expenditures across the lifecycle rather than the year. They are not really suited to financing the larger catastrophic payments and, for example, Singapore has an add-on system of insurance to financed such services in the event that the savings account is insufficient (Pauly, 2001).v) Vouchers In addition to the main traditional forms of financing, are various other financing mechanisms that have increasingly become popular as ways of targeting services. These include both voucher schemes and conditional cash transfers. Vouchers can be exchanged directly for specified services. Much of the experience of vouchers is in education where they have been used to boost school choice (in North and South America) and encourage female participation (in South Asia). The most successful examples are those that have been distributed to easily identifiable groups who have a clear need for service. These include STI treatment for sex-workers (Nicaragua), bed-net distribution to pregnant women (Tanzania) and ANC and delivery care for poor pregnant women (Yunan, China) (summarised in (Ensor, 2004)). They could be distributed to purchase small, regular medical services in which case they would be indistinguishable from the pre-payment cards used in many micro-insurance schemes. If vouchers are distributed for general medical services where their use is less certain then they become a type of insurance in which case calculations of actuarial risk are required. The area where a catastrophic dimension to a conventional voucher can easily be added is providing care for complications for pregnancy which can be added to a conventional maternal health card covering antenatal and care for normal delivery.vii) Conditional cash transfers Conditional transfers are the provision of cash on condition that use is made of specified high priority services. The best known programme is the Progresa scheme in Mexico which provides conditional cash transfers to poor families on condition that they enrol and keep their children in primary school and utilise basic health services aimed at 16Assessing financing mechanisms for their ability to deliver an insurance function children and pregnant women (Gertler, 2000; T.P.Schultz, 2001). Schemes have also been introduced in other Central and South American countries. The Nepal safe motherhood scheme that provides a fixed cash sum to women, designed to mitigate the costs of travel, that arrive for delivery at a health facility is another such example. Neither the transfers nor the services that are provided can really be an insurance mechanism. Transfers help to raise a households income but are of a fixed amount. They are used to encourage consumption of a service which should be provided to all in a particular group education for school children, growth monitoring for infants, antenatal care for pregnant women. It may, however, be possible to piggy back insurance onto such transfers in the same way that insurance is sometimes included as an extra benefit of micro-credit so that, for example, part of the cash transfer might be in the form of insurance for services.viii) Tax financing Tax funding is used as the basis of the insurance mechanism predominant in many countries of the OECD including Scandinavian, New Zealand and the United Kingdom. The main difference from the social insurance of countries such as Germany, Austria and Hungary is that residency or citizenship qualifies entitlement rather than contribution. Historically tax financed systems have tended to be associated with government owned providers although this need not be the case and increasingly contract relationships exist between the public purchasers and providers both government and non-government. Benefits may be less well defined than in social insurance systems and lack of coverage may only become apparent when a member attempts to obtain a service that the public purchaser considers not to be on the list. Increasingly both social insurance and tax financed systems are making use of effectiveness and cost-effectiveness decision criteria to decide whether medical technologies are included in the benefits package. Tax financing provides a reasonably low cost way of pooling funding for a large population. It has a broader base than social insurance and so revenue may be less prone to fluctuations in the macro-economy. Whether tax funding provides an insurance function crucially depends on what types of services are financed. While services in the essential package mostly provide relatively little catastrophic insurance, providing funding for hospital, particularly inpatient, services do provide such coverage. There are two major criticisms of such funding in low income countries. Firstly, benefits incidence results invariably show that the benefits of secondary and tertiary level services are predominantly captured by middle and upper income groups (however measured). Thus funding hospitals is not seen as pro-poor strategy. This objection to financing secondary care services goes back to the barriers to use discussed briefly in an earlier section. Geography is clearly an important barrier and the near immutable fact that much of the poor usually live far from hospitals. The solution to this issue may sometimes to bring mobile clinic services nearer rural, poor communities. This works in case of some basic services including primary care and some mass surgical services such as cataract surgery and sterilisation. In most cases it is neither effective (in terms of quality outcomes) nor cost-effective to duplicate services in every area. In other circumstances it 17Assessing financing mechanisms for their ability to deliver an insurance function may be preferable to develop ways of bringing patients to health facilities. This is particularly important for very scattered populations and in the case of specialist services. The second criticism is that the services provided frequently provide less health gain per dollar or Taka spent. The latter argument clearly depends on the type of services but in general it is true that many hospital level services come out rather poorly in dollar per DALY reduction or QALY gained (World Bank, 1993). It is certainly important to prioritise treatments that deliver high value and the essential package approach has helped to increase the resources going to a range of priority diseases. Yet at the same time insurance against catastrophic risks has benefit to the population that goes beyond immediate health gain, usually the basis for DALY calculations, in impacting the ability of a household to maintain household living standards and livelihoods. In a tax funded system there are typically two ways of ensuring that catastrophic (or any other) services are financed. The first is to purchase services through contracts either from non-government (for profit or not for profit) providers or from autonomous state owned but independently managed providers. Such a modality has become increasingly popular in OECD countries where the benefits of choice and competition are regarded as having a beneficial impact on quality. A central issue with such an approach is that it presupposes an ability to design and monitor contracts that is lacking in many public sectors and can be expensive to develop and operate. A second approach is to deliver services directly through government run hospitals. In effect Government hospitals become a type of insurance organisation (McGreevey, Rannan-Eliya, Akin, Musgrove, Gaag, & J effrey Hammer, 1998). They are given a fixed budget to provide for the catastrophic health care needs of the catchment population. The problem of benefit capture by the rich remains pertinent but hospitals around the world can, if adequately resourced, develop systems that automatically filter patients so that those in most need receive free care. While overt systems of filtering according to need often fail, methods of self-selection, where richer patients opt for more comfortable accommodation and at the same time also pay for part of their medical care, are arguably more effective and certainly cheaper to administer. Hospitals in Bangladesh already filter patients in this way although the lack of resources in many public facilities mean that medical care often remains inadequate. This discussion raises a key issue for policy makers. Consolidated funding (taxation plus other contributions) is usually the cheapest form of pooled funding to administer. The main issue at stake is whether the resources can be directed in a way that properly finances catastrophic care (the purchasing/payment function). Currently this is not the case. Allocations of beds and resulting financial allocations are based on norms per district and upazila not population size and other measures of health need (Ensor, Hossain, Sen, Ali, Begum, & Moral, 2004). A recent study demonstrates that, for districts of the same size, Bangladesh has much less hospital capacity than other countries in South Asia (Somananthan, Rannan-Eliya, Hossain, Pande, Sharma, & Sikurajapathy, 2006).3. 3 For example Sri Lanka has 3.08 per 1000 population while Bangladesh has 0.24. 18Assessing financing mechanisms for their ability to deliver an insurance function Discussion: a way forward Although there are many ways of financing care, the choice of mechanisms to finance catastrophic is more limited. The level of pooling in the Bangladesh health system is currently extremely low. According the 1999/01 National Health Accounts only around 36% finance for health care is pooled (Data International, 2003). There is a general consensus that measures are required to increase pooling. Although HNPSP states an intention to extend catastrophic risk coverage to a larger proportion of the population evidence suggests that these costs are mostly not well covered by pooling arrangements (Barkat & Sabina, 2006), page 37. Much of the debate to boost pooling focuses on insurance mechanisms but it is also important to consider whether the public system could be better enabled to provide for catastrophic risk. The aim of this paper is to raise the issue of providing greater risk protection to the Bangladesh population. A variety of mechanisms are available most of which have been tried out to some degree in the country. The HEU is well placed to lead a debate on ways to improve risk protection. 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