FEATURES NEWS THE RISING NEPAL (DAILY)

By Bachchu Kailash Kaini

HEALTH insurance is an important factor to be considered for the overall development of the health system in any country. Alternatives to government budget allocations for financing health services are required to meet the demand of the entire population.

Policy

Efficiency, equity and revenue collection should be the objectives of a health financing policy. Problems of efficiency and equity in the delivery of hospital services and insufficient funds for recurrent operating costs have to be emphasised to solve the health related problems. Health financing policy can contribute to improved equity and efficiency of services use and improved funding or, if ill considered, can contribute to a worsening of these problems. Efficiency, equity and revenue collection, thus, are criteria by which the performance of a financing policy can be assessed.
Insurance provides the means by which risks, or uncertain events, are shared between many people. Premiums are paid to an insurance company which compensates any insured victim of the event for any financial loss resulting from the event. Insurance, therefore, helps to lessen and spread risks, and it relies on the fact that what is unpredictable for an individual is highly predictable for a large number of individuals. It follows that for insurance to be feasible, there must be enough individuals insured to spread the risks widely, and the uncertain events must be relatively independent of each other.
Insurance inevitably has redistributive consequences, their nature and magnitude depending on the financing of the schemes and the way in which premiums are assessed. Because the occurrence of the event being insured against is uncertain, some participants will draw out more than they pay in, thus resulting in redistribution from the healthy to the sick.

The introduction of health insurance in either its private or social form in our country is likely to carry with it certain implications for the efficiency and equity of the health care system. The potential for expanding the health sector through increased government finance is likely to be very limited in our country, even if the initial cost is relieved by external aid. The tax, base is often very narrow, consisting largely of indirect taxes such as customs duties and receipts from direct taxes such as income tax are typically low. Some form of health insurance, requiring contributions by individuals and/or employers, often appears attractive to a health sector starved of funds and doubtful of getting revenue from other quarters.

Health insurance can be financed and organised in a variety of different ways. It can be purchased by an individual or group through the private market, from either profit or non-profit firms, and under these circumstances is conventionally termed private or voluntary health insurance. Health care itself would usually be delivered by independent providers, but sometimes by facilities owned by the insurer. The level of an individual's premium would be based on the actuarially determined likelihood of illness of that

individual. In Contrast, group insurance is often based on a firm or cooperative, and the premiums related to the risk of the group of employees.

An individual's demand for private health insurance will be determined by factors such as the price of insurance, that is the premium to be paid; individual's assessment of the probability of loss resulting from illness, the likely magnitude of that loss; his/her income and most especially the degree to which s/he is risk averse.

It is likely that if individuals left to purchase the health care they want with the income available to them, some would be unable to afford what would be considered an appropriate amount. Moreover, the purchasing power of poor communities may be inadequate to attract health practitioners and facilities. The problem comes in while determining how to move towards a different distribution of health care consumption than that which results from free market forces. Furthermore, once income transfers are made to subsidise consumption, attention has to be given not only to who is consuming health care but also to who is paying.

The organisation of health insurance on a public does not necessarily ensure in equitable system. Even if social insurance covers both high and low wage earners, utilisation patterns will not necessarily be proportional to health need.

The majority of working populations in our country are either self-employed or work for small enterprises in agricultural sector, wages are typically low and employment unstructured. In the urban informal sector, wages are low and may be received in kind rather than cash and may be spread over a larger number of economically inactive household members. When, as is often the case, small scale agricultural or industrial producers face prices set by the market which they cannot influence, they may be unable to pass on the cost of insurance to consumers, and any payroll tax may threaten their financial viability. Moreover, the per capita cost of health care in rural areas is likely to be higher than in urban areas, requiring larger payments for the same level of services, and an administrative structure that can be used for the collection of contributions may not exist. In such a case, the extension of social insurance is challenging and government has to be serious to provide the health insurance to the entire population of the country.

There are, however, a number of ways in which either compulsory or voluntary insurance schemes could be set up to include rural populations. Rural health insurance scheme could be financed through local household taxation and state subsidies. A nominal amount of tax on the value of agricultural products sold could be paid to local hospitals, which in return admit rural workers and their dependents as 'insured person.'

Value

Finally, the value of insurance, as a principle, providing protection for the individual against the cost of illness, is clear. Beyond that principle, the value of an insurance system depends on its effect both as a source of funds and as a way of organising the provision of health care.

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