Thursday, September 24, 2009
By Kofi Bentil, Bright B. Simons & Franklin Cudjoe
When the announcement came that the main plank in the reforms would be the conversion of the recurrent premium payment model to a one-off payment model, we were worried.
Nevertheless, we consoled ourselves with the thought that this aspect of the reform process could be an intellectual exercise. Government had, after all, tasked a team of actuaries and policy specialists to sift through the NHIS structure and advise it of the feasibility of the one-off payment approach. It hadn’t plunged headlong into implementation.
Surely, its real intent was to set an ambitious target – i.e. one-off premium payment – in order to make the experts think outside the box, so as to come up with the most creative and rigorous recommendations.
Recent announcements, especially the latest by the new Chief Executive of the NHIS, suggest that the technical advisors to the Minister of Health and the President of the Republic are on the verge of declaring the one-off premium payment model a viable policy option.
A one-off premium payment model would have the character of:
Converting the NHIS from an insurance scheme to something else entirely, one financed out of general taxation, but certainly far removed from any notion of insurance.
Implying that each Ghanaian would at some time in their lives pay a prescribed sum and afterwards be entitled to free healthcare, within the limits imposed by the enabling Act, for the rest of their lives.
Complicating the ability to determine when people who have been exempted from making contributions are in a position to begin doing so.
These characteristics do not immediately strike an observer as worrying but probing just a bit beneath the surface reveals an astonishing range of perverse outcomes that in our view would almost certainly lead to a complete breakdown of our healthcare system should the policy ever be implemented. Some of these aforementioned outcomes will lead to losses of efficiency, others to losses of equity, and yet others to losses of quality. We will examine these characteristics in turn, in order to highlight these perverse outcomes.
INSURANCE
The use of insurance to assist the intent of universal access to health proceeds according to three main principles: resource pooling, risk equalisation and cross-subsidisation. These terms are all self-explanatory. The “premium” in the risk market plays the same role that the “price” plays in the commodity market. It provides signals (information) that allow an efficient allocation of resources by the key participants in the scheme. Similarly, it responds to the behaviour of the parties and is susceptible to ambient market conditions.
That is why a premium is custom-quoted to each buyer of health insurance. Everyone represents a different level of risk at the outset. That is also why a premium is adjusted based on new and evolving information, as levels of risk and reward to the scheme changes over time.
What a one-off premium would do is rob the Scheme managers of a vital instrument for the calibration of risk. Given the high rates of inflation typical of our economy, a one-off premium would lead to a shrinking pool of private contributions to offset the inability of budgetary allocations to track inflation. The shrinking pool will also interfere with the ability to invest optimally in order to counteract diminishing returns. This is a key feature of insurance: the ability to invest today’s contributions to service tomorrow’s claims.
Moreover, it will deepen existing defects that encourage overutilization due to the absence of co-payment, proper documentation, and a penalty-reward system tied to an adjusting premium base.
EQUITY, EFFICIENCY & QUALITY
One interesting outcome of a one-off premium is that earlier generations will be better off than latter generations, and richer patients will benefit far more than poorer patients.
Even accommodating the levelling effects of improving technologies, which should normally accrue in the favour of latter generations, does not make much of a dent on the fact that a one-off premium would imply consuming our inheritance today rather than tomorrow, partly by reducing the capacity to invest incoming revenue more sophisticatedly.
The vast majority of contributions to the National Health Insurance Fund would be made in the few years after the introduction of the one-off payment model, after which the growth in contributions can at best only track the population growth rate of 2.5% or so.
As inflation and upfront investments in infrastructure begin draining the fund, the availability of resources will decline steadily in a linear fashion until exponential effects begin to set in, whereupon a spiralling spate of arrears accumulation will prompt a severe rationing of care across board to the detriment of poor patients who will be unable to afford top-up provision in the market.
In the initial stages, the quality of care will actually improve, since it is highly likely that: a) there will be a surge in early subscription to the scheme and b) the transition to a one-off payment model will involve an increase in the nominal level of the premium rate.
Both trends will mean a boost in fund reserves. However, the sharp drop in continuing injections in the fund will make the initial boost resemble a drug-induced high. Quality will drop very rapidly. In fact, we are already close to saturation level in subscription rate already, meaning that the said initial surge in subscription would be artificial, the result of system misfits (eg. People with existing coverage plans from the private sector) signing on due to the inordinate lowering of the risk posed by potential future rises in the premium level for certain categories of users.
Furthermore, given the disparity between the growth in incomes of the rich and poor, and our lack of tools to accurately measure income variances in Ghana, a one-off premium will mean that, taken as a flow over a number of successive years, the contribution of the rich would represent a far smaller proportion of their income.
More controversially, it can be argued that the “diseases of the rich” – hypertension, diabetes, cardiac weakness etc. – are more expensive to treat than the “diseases of the poor” – malaria, diarrhoea, cholera etc. This level of analysis is of course complicated by the fact that the NHIS maintains various exemption lists, particularly for pharmaceuticals, and that lifestyle changes weakens the distinctions among diseases that predominantly affect one income class rather than another. But there is a sound basis to suggest that usage could correlate with different user pools characterised by income, gender or other identifiers.
What is obvious though is that in the absence of a tool to discriminate between different income groups, the system will become rife with unfairness. There would be every incentive to consume healthcare without regard for the cost. There will be no regime to peg certain types and levels of consumption at certain rates of contribution.
As rich people become richer or poorer, and poor people become poorer or richer, the premium-contribution system that would have played the responsive role of regulating fair use would have ceased to function at all, having been frozen at various arbitrary historical epochs.
In the same vein, the ability of different NHIS trusts and schemes to adapt the system to better suit local conditions, as well as by extension the different needs of different classes of treatment facilities, would be severely compromised. This trend shall be particularly pronounced in transition communities that are transforming from rural to peri-urban or from suburbia to municipal centres.
Generally speaking, the inability of managers to use the premium as a dynamic, responsive, instrument for measuring and interacting with risk, and for segmenting the patient population on a continuous and adaptive basis, should lead to falling resource levels, poorer quality outcomes, and both gross inefficiency and unfairness.
FINANCIAL PRUDENCE
One untenable argument that gets in the way of comprehensive analyses of NHIS structure and that usually lends itself to debunking calls for more prudent reforms is the argument that because, as has been mentioned recently, only 10% of NHIS funding come from private contributions, “premiums” are insignificant in the broader scheme of things.
This is puzzling, since the right response to aforementioned financial fact should be a search for the means to quickly expand that ratio in favour of private contributions by ensuring that those who can pay more do so. The fact that only 10% of total funds come from private sources is no basis to argue that 0% is the ideal figure.
Financing healthcare from general taxation beyond a certain point is detrimental to the poor. The poor spends a higher proportion of their income on direct consumption, making blunt consumption taxes less fair than a system that aspires to triangulate consumption and income with contribution. Furthermore, political pressures make the alignment of consumption taxes with second order inflation effects problematic. Indeed, any attempt to conflate the one-off premium payment with a corresponding increase in the NHIL rate should prove politically contentious.
The 2.5% National Health Insurance Levy (NHIL) is collected alongside VAT. From what we have been told it is the statutory source of close to 90% of the money in the National Health Insurance Fund (NHIF). That is to say, while one cannot presume that donors will continue to contribute to the Fund, it would always be safe to say that 90% of the funding for the NHIS will originate from general taxation, especially as the current attitude is to dismiss private contributions as an important source. Let us work with this 90% figure, while noting that it has been a downward trend since the extensive introduction of the NHIS Scheme in 2005 (when it contributed about 75%).
The latest figures suggest that a little more than GHC150 million was recorded in first half of this year in NHIL collections. As economic activity generally picks up in the latter half of the year, it is safe to conclude that NHIL contributions to the NHIF would not total less than GHC300 million this year. The same arithmetic yields about GHC33 million as the amount of direct private contribution to the NHIS (assuming no donor support or additional government allocation). As coverage now extends to 10 million Ghanaians, the suggestion is that average contribution per user amounts to about GHC3.3 per year or a little more than this.
Of significant note, also, is the report that the National Health Insurance Authority has arrears amounting roughly to GHC120 million as of June this year, mainly in the form of unpaid claims by service providers. Quite clearly, there are significant shortfalls in the flow of funds into the NHIS reserve, which compounded by the fact that at least a half of the user population is exempted from contributing indicate strongly that the financial base of the NHIS is tottering even at a time when a proportion of financing comes from private sources. It is clear that this pressure would not alleviate upon the curtailment of continuing private contribution.
The combined effect of the various back of the envelope calculations above demonstrates clearly that what is urgently required is a policy that will boost private contributions by at least 5 times the current figure and not to abolish it.
Because, even taken together with the NHIL pool, the per capita user contribution to the NHIS amounts to less than GHC33, taken into account that there are, from the available figures, at least 8 million people who contribute to the NHIF waiting to enjoy the benefits. The annual effective per user contribution is therefore closer to GHC20. This is sub-optimal in a country with a GDP per capita of GHC1000.
We cannot as a country expect to contribute 2% of per capita income to healthcare and derive quality outcomes. Nor can we ignore the inequitable structure of the contribution system. If the 10 million users of NHIS services are distributed uniformly across the population, and there is no reason why they shouldn’t be, then at least 1 million of them earn in the top quintile of the income pyramid, with a household income of roughly GHC5000 per annum (extrapolating liberally from the latest Ghana Living Standards Survey). If these users were to pay 5% of their income as contributions to the health kitty, that alone would lead to a tripling of the private contribution pool.
The feasibility of the suggested scenarios is easily tested by examining the private health insurance market in Ghana, where premiums are easily 20 times what prevail in the NHIS.
But the most important insight is that recurrent premiums ARE REQUIRED in order to manage the dynamic and complex factors that contribute to smart and equitable pricing in the health risk market.
The introduction of a one-off premium would, in our view, lead to no better end, but shall instead precipitate chaos across all levels of the healthcare delivery system.
If we are unable to convince the Minister of Health and the President of the Republic to with our arguments for a more forward-looking policy, we hope that at least we shall be able to touch off a debate.
Kofi Bentil, Bright B. Simons & Franklin Cudjoe are affiliates of IMANI-Ghana (www.imanighana.com) and www.AfricanLiberty.org