Government Health Financing for All, Not Insurance

By Jomo Kwame Sundaram and Nazihah Noor

KUALA LUMPUR and BERN, Aug 2 2023 (IPS) - To achieve universal health coverage, people need public healthcare systems providing fair access to decent health care. This should be an entitlement for all, regardless of means, requiring adequate, appropriate and sustainable financing over the long term.

Appropriate arrangements can help ensure a financially sustainable, effective and equitable healthcare system. However, insurance-based systems – both private and social – not only incur unnecessary costs, but also undermine ensuring health for all.

Private health insurance

Voluntary private health insurance (PHI) is not an acceptable option for both equity and efficiency reasons. Those with lower health risks are less likely to buy insurance. Paying the same rate will be seen as benefiting those deemed greater risks, especially the less healthy, often also those less well off.

Hence, PHI premiums are often ‘risk-rated’. This means those considered greater risks – e.g., the elderly or those with pre-existing conditions – face higher premiums. As these are often un-affordable, many cannot afford coverage.

This is clearly neither cost-effective nor equitable, but also socially risky, especially with communicable diseases. This typically means poorer health outcomes compared to spending. Also, various insurance premium rate arrangements have different distributional consequences.

‘Fee-for-service’ reimbursement encourages unnecessary investigations and over-treatment. This escalates costs, raising premiums, without correspondingly improving health. But limiting such ‘abuse’ requires monitoring, always costly.

Unsurprisingly, many PHI companies use costly ‘managed healthcare’ services to try to limit rising costs due to such abuses. Thus, Americans spend much more on health than others, but with surprisingly modest, unequal and hardly cost-effective health outcomes.

With PHI, much public expenditure is needed to cover the poor and others who cannot afford the premiums, often also deemed to be at greater risk. Hence, achieving ‘health-for-all’ in such circumstances would require costly public subsidization of PHI.

Social health insurance

Unlike typically ‘voluntary’ PHI, social health insurance (SHI) is usually mandatory for entire national populations. Although often espoused with the best of intentions, SHI is invariably costlier due to its limitations and problems.

SHI incurs additional costs of health insurance administration to enrol, collect premiums, ascertain eligibility and benefits, make payments and minimize abuses. Revenue financed universal coverage need not incur such costs.

Compared to PHI, SHI seems like a step forward for countries with weak or non-existent public healthcare arrangements. But like PHI, SHI encourages over-treatment and cost escalation, as well as costly bureaucratic insurance administration.

Instead of such abuses inherent to insurance systems, a revenue financed health systems would incentivize prioritizing the health and wellbeing of those it is responsible for, thus emphasizing preventive health.

Such a health system contrasts with insurance systems’ emphasis on minimizing costs for the often unnecessary medical services it incentivizes, instead of improving the population’s health and wellbeing.

Government subsidies for health insurance, private or social, would inevitably go to the transnational giants which dominate health insurance internationally.

Financing SHI complications

Hence, SHI involves much more per capita health spending, raising it by 3-4%! But despite being much more costly than revenue-financed systems, there is no evidence health outcomes are improved by switching to SHI from government funding.

Germany’s SHI has been more cost-effective than the US with its PHI. But it is less cost effective than most other economies with revenue-financed healthcare. Nevertheless, healthcare financing consultants, continue to recommend versions of SHI, although it is clearly not cost-effective, appropriate, efficient or equitable.

SHI schemes remain in some rich countries for specific historical reasons, e.g., Germany’s evolved from its long history of union-provided health insurance. But more recently, even these economies rely increasingly on supplementary revenue financing. But again, such hybrid financing does not improve cost-effectiveness.

As SHI typically involves imposing a flat payroll tax, it discourages employers from providing proper employment contracts to staff. SHI is estimated to have reduced formal employment by 8-10% worldwide, and total employment in rich countries by 5-6%!

It is also difficult and costly to collect SHI premiums from the self-employed, or from casual, temporary and informal workers not on regular payrolls. Also, most working people in developing countries are not in formal employment, with far fewer unionized.

SHI schemes are always difficult to introduce as they would reduce take-home incomes. In most developing countries, most families cannot afford such pay-cuts. Hence, government revenue would still be needed to cover the uncovered to achieve health for all.

Many SHI proposals also recommend earmarking revenue from new ‘health’ taxes collected. Such earmarking creates likely conflicts of interest reminiscent of justifications for ‘sin taxes’ on addictive narcotics, smoking, alcohol consumption and gambling.

Will governments perpetuate unhealthy practices and behaviours to secure more tax revenue? Is there an optimum level of smoking or sugar consumption to be allowed, even encouraged, to get such earmarked funding?

Revenue financing

International evidence shows progressive revenue-funded public health financing to be much more equitable, cost-effective and beneficial than SHI. Hence, moving from revenue-financing to SHI would be a step backwards in terms of both equity and efficiency, or cost-effectiveness.

The late World Bank economist Adam Wagstaff and others have long advocated tax- or revenue-financed health provisioning due to the significant additional costs of managing health insurance systems, both private and social.

Revenue-financed public healthcare financing avoids the many insurance administration expenses incurred by both PHI and SHI. There will be no more need for such costly payments for unnecessary medical tests, procedures and treatments, and bureaucratic processes to manage insurance procedures and curb abuses, e.g., those associated with ‘moral hazard’.

Better financing and reorganization of preventive health efforts are needed. Public health programmes requiring mass participation, e.g., breast or cervical cancer screening, generally have much better outcomes with revenue-financing compared to SHI.

Better results can be achieved by improving tax-funded healthcare. More resources need to be deployed to improve preventive and primary healthcare. Strengthening public health services must include improving staff service conditions, morale and retention rates.

There is nothing inherently wrong with revenue-financed healthcare. Underfunding is largely due to political choices and fiscal constraints. These are typically due to externally imposed political limits.

Instead of dogmatically insisting on SHI, as is typical of health financing consultants, revenue financing of public healthcare should be reformed, strengthened and improved by: * increasing and improving budget allocations. * eliminating waste and corruption with competitive bidding, etc. * increasing government revenue with fairer taxation, including wealth, ‘windfall’ and deterrent ‘sin’ taxes, e.g., of tobacco and sugar consumption.

https://www.ipsnews.net/2023/08/government-health-financing-not-insurance/

Related IPS Articles

·Improving Healthcare for All

·Prioritising Profits Reversed Health Progress

·Privatised Health Services Worsen Pandemic

·How to Sustainably Finance Universal Health Care

·Why Some National Health Care Systems Do Better than Others

·Hospital PPPs Undermine Healthcare

·PPPs Likely to Undermine Public Health Commitments

·Build Healthy, Sustainable Food Systems to Fight Malnutrition

Exchange Rate Movement Due to Interest Rates, Speculation, Not Fundamentals

By Jomo Kwame Sundaram

KUALA LUMPUR, Malaysia, Jul 26 2023 (IPS) - Currency values and foreign exchange rates change for many reasons, largely following market perceptions, regardless of fundamentals. Market speculation has worsened volatility, instability and fragility in most economies, especially of small, open, developing countries.

US Fed pushing up interest rates

For no analytical rhyme or reason, US Federal Reserve Bank (Fed) chairman Jerome Powell insists on raising interest rates until inflation is brought under 2% yearly. Obliged to follow the US Fed, most central banks have raised interest rates, especially since early 2022.

The US dollar or greenback’s strengthening has been largely due to aggressive Fed interest rate hikes. Undoubtedly, inflation has been rising, especially since last year. But there are different types of inflation, with different implications, which should be differentiated by nature and cause.

Typically, inflationary episodes are due to either demand pull or supply push. With rentier behaviour better recognized, there is now more attention to asset price and profit-driven inflation, e.g., ‘sellers inflation’ due to price-fixing in monopolistic and oligopolistic conditions.

Recent international price increases are widely seen as due to new Cold War measures since Obama, Trump presidency initiatives, COVID-19 pandemic responses, as well as Ukraine War economic sanctions.

These are all supply-side constraints, rather than demand-side or other causes of inflation.

The Fed chair’s pretext for raising interest rates is to get inflation down to 2%. But bringing inflation under 2% – the fetishized, but nonetheless arbitrary Fed and almost universal central bank inflation target – only reduces demand, without addressing supply-side inflation.

But there is no analytical – theoretical or empirical – justification for this completely arbitrary 2% inflation limit fetish. Thus, raising interest rates to address supply-side inflation is akin to prescribing and taking the wrong medicine for an ailment.

Fed driving world to stagnation

Thus, raising interest rates to suppress demand cannot be expected to address such supply-side driven inflation. Instead, tighter credit is likely to further depress economic growth and employment, worsening living conditions.

Increasing interest rates is expected to reduce expenditure for consumption or investment. Thus, raising the costs of funds is supposed to reduce demand as well as ensuing price increases.

Earlier research – e.g., by then World Bank chief economist Michael Bruno, with William Easterly, and by Stan Fischer and Rudiger Dornbusch of the Massachusetts Institute of Technology – found even low double-digit inflation to be growth-enhancing.

The Milton Friedman-inspired notion of a ‘non-accelerating inflation rate of unemployment’ (NAIRU) also implies Fed interest rate hikes inappropriate and unnecessarily contractionary when inflation is not accelerating. US consumer price increases have decelerated since mid-2022, meaning inflation has not been accelerating for over a year.

At least two conservative monetary economists with Nobel laureates have reminded the world how such Fed interventions triggered US contractions, abruptly ending economic recoveries. Although not discussed by them, the same Fed interventions also triggered international recessions.

Friedman showed how the Fed ended the US recovery from 1937 at the start of Franklin Delano Roosevelt’s second presidential term. Recent US Fed chair Ben Bernanke and his colleagues also showed how similar Fed policies caused stagflation after the 1970s’ oil price hikes.

De-dollarization?

However, the US dollar has not been strengthening much in recent months. The greenback has been slipping since mid-2023 despite continuing Fed interest rate hikes a full year after consumer price increases stopped accelerating in mid-2022.

Many blame recent greenback depreciation on ‘de-dollarization’, ironically accelerated by US sanctions against its rivals. Such illegal sanctions have disrupted financial payments, investment flows, dispute settlement mechanisms and other longstanding economic processes and arrangements authorized by the World Trade Organization, International Monetary Fund and UN charters.

Even the ‘rule of law’ – long favouring the US, other rich countries and transnational corporate interests – has been ‘suspended’ for ‘reasons of state’ due to economic warfare which continues to escalate. Unilateral asset and technology expropriation has been justified as necessary to ‘de-risk’ for ‘national security’ and other such considerations.

Horns of currency dilemma

For many monetary authorities, the choice is between a weak currency and higher interest rates. With growing financialization over recent decades, big finance has become much more influential, typically demanding higher interest income and stronger currencies.

Central bank independence – from the political executive and legislative processes – has enabled financial lobbies to influence policymaking even more. For example, Malaysia’s household debt share of national output rose from 47% in 2000 to over four-fifths before the COVID-19 pandemic, and 81% in 2022.

There is little reason to believe recent exchange rates have been due to ‘economic fundamentals’. Currencies of countries with persistent trade and current account deficits have strengthened, while others with sustained surpluses have declined. Instead, relative interest rate changes recently appear to explain more.

Thus, both the Japanese yen and Chinese renminbi depreciated by at least six per cent against the US dollar, at least before its recent tumble. By contrast, British pound sterling has appreciated against the greenback despite the dismal state of its real economy.

Related IPS Articles

·US Policies Slowing World Economy

·Stop Worshiping Central Banks

·Central Bank Myths Drag down World Economy

·Ideology and Dogma Ensure Policy Disaster

·Inflation Phobia Hastens Recessions, Debt Crises

·Inflation Targeting Farce: High Costs, Moot Benefits

Exchange Rate Movements Due to Interest Rates, Speculation, Not Fundamentals

Improving Healthcare for All

By Jomo Kwame Sundaram and Nazihah Noor

https://www.ipsnews.net/2023/07/improving-healthcare-for-all/

KUALA LUMPUR and BERN, Jul 19 2023 (IPS) - In 2015, almost all heads of government in the world committed to the United Nations’ Sustainable Development Goals (SDGs), including universal health coverage (UHC). This was consistent with the World Health Organization’s commitment to Health for All.

The COVID-19 pandemic exposed most countries’ under-investment in public healthcare provisioning and other weaknesses. Clearly, health system reforms and appropriate financing are needed to improve populations’ wellbeing.

Instead of helping, more profit-seeking investments and market ‘solutions’ in recent decades have undermined UHC. Health markets the world over rarely provide healthcare for all well. Instead, they have increased costs and charges, limiting access. Worse, public funds are being diverted to support profits, rather than patients.

Health inequalities growing

Recent decades have seen healthcare in many developing countries trending towards a perceived two-tier system – a higher quality private sector, and lower quality public services. Many doctors, especially specialists, have been leaving public service for much more lucrative private practice.

This ‘brain drain’ has worsened already deteriorating public service quality, increasing waiting times. Hence, more of those with means have been turning to private facilities. As private medical charges are high in developing countries, many who can afford private health insurance, buy it.

If unchecked, the gap – in charges and quality – between private and public health services will grow, increasing disparities between haves and have-nots. Social solidarity implies cross-subsidization in health financing – with the healthy financing the ill, and the rich subsidizing the poor. Social solidarity also enables universal coverage and equitable access.

Better healthcare for all

Most governments need to strengthen public provisioning of comprehensive health protection with adequate financing. Meanwhile, healthcare costs have gone up due to more ill health, the rising costs of new medical technologies, privatization and less public procurement.

Everyone – nations as well as families – faces more unexpected health threats, worsened by rising catastrophic and other medical expenses, more economic vulnerability, greater income insecurity, declining public provisioning, and costlier coping strategies.

‘Premature’ death, disability and illness have meant losing billions of years of healthy life, largely due to preventable non-communicable diseases (NCDs). Although they cause many health losses, relatively little public health spending goes to NCD prevention.

Spending and outcomes

Most countries, including in the developing world, have seen rising healthcare spending. But there is no direct relationship between health expenditure and wellbeing. Hence, more spending does not ensure better outcomes, whereas appropriate public healthcare provisioning does.

Although health spending has been rising in many developing countries, it has generally remained low in relation to income. Government health services were already facing fiscal constraints before the pandemic. To cope with COVID-19, public health expenditure in many middle-income countries spiked.

Chronic underinvestment in public services has undermined healthcare overall. Many underfunded systems have nonetheless improved health conditions, reducing morbidity and mortality. Decent health outcomes, despite relatively low health spending, imply greater public expenditure ‘cost-effectiveness’ or efficiency.

Nonetheless, much more could be achieved with better policies, increased spending and more appropriate priorities. Thus, reducing child and maternal mortality, besides improving sanitation and water supplies, have significantly raised life expectancy in developing countries.

Improving policy

To enhance wellbeing, health systems must better protect people from current and future threats and challenges. Better public healthcare financing – with absolutely and relatively more, but also more appropriate funding – seems most important.

Developing country governments are often fed oft-repeated, but doubtful claims that current government healthcare spending is too high, and health insurance is necessary to fill the funding gap. Instead, official revenue should mainly fund health budgets to ensure efficiency and equity.

Health promotion should involve more preventive efforts. By mainly focusing on curative interventions, most government spending and policy priorities neglect determinants of wellbeing, including inequities. Some WHO recommended policies deemed most cost-effective target tobacco products, harmful alcohol use and unhealthy diets.

Policy coherence

To better address overall wellbeing, a more comprehensive and integrated approach should integrate health with related public policies. Affordable healthier food options, physical exercise and healthier lifestyles deserve far greater emphases.

For example, a cheap, but nutritious, safe and healthy daily school feeding programme in Japan – introduced a century ago, when it was still quite poor – has ensured life expectancy in the archipelagic nation has been the world’s highest for decades.

An ‘all-of-government’ approach should ensure meals planned by dieticians, mindful not only of good nutrition, but also of local food cultures, costs, safety and micronutrient deficiencies. With a ‘whole-of-society’ approach, involved parents can ensure schoolchildren are fed safe food from farmers not using toxic pesticides.

This can be ensured with the food or agriculture ministry’s participation. Farmer organizations can be contracted to supply needed foodstuff with initial support from government agricultural extension services, not corporate salesmen. This, in turn, improves the safety of all farm produce, ensuring healthy food for all.

Health reform recommendations should prioritize governments’ major commitments – to the people and the international community – of ‘universal health coverage’ to ensure ‘health for all’. Nazihah Noor is a public health policy researcher. She led two reports on health system issues in Malaysia, Social Inequalities and Health in Malaysia and Health and Social Protection: Continuing Universal Health Coverage. She is currently pursuing a PhD in public health in Switzerland.