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This article first appeared in Forum, The Edge Malaysia Weekly on July 3, 2023 - July 9, 2023

To achieve universal health coverage, countries need healthcare systems that provide fair access to decent healthcare. This should be on the basis of need — an entitlement for all, regardless of means — and requires sustainable financing over the long term.

Appropriate financing arrangements can help ensure a financially sustainable, effective and equitable healthcare system. But insurance options — both private and social — not only incur unnecessary bureaucratic costs, but also stand in the way of ensuring health for all.

Private health insurance

Voluntary private health insurance (PHI) cannot offer a viable option as those with lower health risks are less likely to buy insurance, which is seen as mainly benefiting the less healthy.

PHI premiums are often risk-rated, meaning those with pre-existing conditions and higher risks — such as the elderly — face higher, often unaffordable premiums, or are denied coverage. Government support for PHI thus favours transnational insurance businesses.

“Fee-for-service” reimbursement encourages unnecessary investigations and over-treatment. Such arrangements escalate costs, raising premiums. Limiting such abuse requires monitoring, which is always costly. Many PHI companies use costly “managed healthcare” services to check such abuses.

Thus, Americans spend much more on health than others, but with surprisingly modest health outcomes. With PHI, much public expenditure is also needed to cover the poor, especially those considered higher risk.

Trying to achieve “health for all” would require costly public subsidisation of profitable PHI arrangements. This would be neither cost-effective nor equitable.

Social health insurance

Unlike typically voluntary PHI, social health insurance (SHI) is usually mandatory for entire national populations. Although often promoted with the best of intentions, SHI limitations and problems should be considered before the government commits to this costly option.

As SHI typically imposes a flat payroll tax, it discourages employers from hiring employees using proper employment contracts. Worldwide, SHI was estimated to reduce formal employment by 8% to 10%, and total employment by 5% to 6% in rich countries.

It is difficult to collect such SHI premiums from the self-employed, or from casual and informal workers not on regular payrolls. But universal health coverage cannot be achieved without covering them.

Premiums can be set with various distributional consequences; for example, a typically flat rate would be regressive in impact. As this would cut take-home incomes, SHI schemes are difficult to introduce, especially as most Malaysian families are already heavily indebted and unable to save much.

SHI schemes, mainly in rich countries, remain for specific historical reasons — for instance, Germany’s scheme evolved from its long history of union-provided health insurance. But most working people in developing countries are not in formal employment, let alone unionised.

For decades, most adult working Malaysians have been employees, but more now opt for self-employment such as “gig work”. Only 6% are in unions, with most in the public sector! Thus, with SHI, government revenue would still be needed for the uncovered.

SHI requires additional layers of healthcare system administration — to enrol, collect, ascertain coverage, determine benefits and make payments — which incurs unnecessary costs compared with revenue-financing.

Compared with PHI, SHI seems like a step forward for countries with weak or non-existent public healthcare systems. But like PHI, SHI encourages over-treatment and cost escalation, inviting costly bureaucratic controls.

Hence, SHI involves much more per capita health spending, raising it by 3% to 4%! Despite being much costlier than revenue-financed systems, there is no strong evidence of better health outcomes due to SHI.

The Ministry of Health’s White Paper appears to be recommending a version of SHI, although this financing option is not appropriate, cost-effective, efficient or equitable. As a new principle, will SHI pave the way for charging school fees once again?

SHI will also set a bad precedent for earmarking tax collection, causing problems of likely conflicts of interest reminiscent of colonial justifications for “sin taxes” on opium, prostitution, alcohol and gambling.

Are we going to perpetuate undesirable practices and behaviours to secure such tax revenue? Is there an optimum level of smoking or sugar consumption to be allowed, even encouraged, in order to secure related funding?

Revenue financing

International evidence has shown progressive tax-funded public health financing to be 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 (cost-effectiveness).

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

Revenue-financed public healthcare services financing avoids many such insurance administration expenses incurred by PHI and SHI. There is no more need for such costly bureaucratic procedures to curb insurance abuses.

Better financing and reorganisation of preventive health efforts are needed. Public health programmes requiring mass participation — for example, breast or cervical cancer screening — have generally had better outcomes with revenue-financing compared with SHI.

Better results can be achieved by improving tax-funded healthcare, with more resources deployed to enhance preventive and primary healthcare, as well as better service conditions for medical personnel. Strengthening public health services must include improving staff working conditions, including their morale and pride in their work.

There is nothing inherently wrong with a system of revenue healthcare financing. Underfunding is due to past political choices, not inherent systemic deficiencies. Instead of imagining a solution in SHI, revenue-financing should be strengthened and improved by:

•     Increasing and improving government healthcare budgetary allocations;

•     Eliminating waste and corruption with competitive bidding and so on; and

•     Increasing government revenue with fairer taxation, including wealth, “windfall” and deterrent “sin” taxes, including of tobacco and sugar consumption.

Jomo Kwame Sundaram, a former economics professor, was United Nations assistant secretary-general for economic development. He is the recipient of the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought. Nazihah Noor is a public health policy researcher pursuing a PhD in Switzerland. She led two Khazanah Research Institute reports on health system issues in Malaysia.

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