Private or Voluntary Health Insurance Schemes

Private health insurance systems are paid for by non-income-based premiums while the voluntary health insurance premiums are paid for by voluntary contributions. Although the two types of coverage are distinct, most private health insurance markets are also voluntary. Private/voluntary health insurance markets are controversial as they often reach wealthier populations. They are also the subject of market failures such as ‘adverse selection’ by covered individuals and ‘cream skimming’ of better health risks by insurers. ‘Premium volatility’ is identified to limit affordability acting as a financial barrier excluding many individuals from gaining access to such insurance schemes.

In view of these complexities, the relevance of private/voluntary insurance schemes is particularly limited for low income countries. Although some of the challenges and market failures can be addressed by regulations and mandated insurer actions, such regulations are considered difficult to implement. This is because the presupposed regulatory resources, political backing, and well functioning financial and insurance markets may themselves be weak thereby posing challenges to strike an appropriate balance between the access and equity concerns as also the promotion of an efficient and competitive marketplace.

Thus, no particular system of healthcare financing may be uniformly suitable to all sections of the society in a country. Low-income countries, in particular, need to increase the efficiency and equity of all public spending systems, including health spending. Given the budgetary constraints and difficulties in generating additional fiscal space, low-income countries are likely to have a larger and more equitable impact on health outcomes if they select a basic universal package of public and merit goods. Such a package should include treatment services that have been proven effective in advancing towards the millennium development goals. The financing of other interventions should be targeted. As studies have revealed large imbalances in the benefit-incidence of public spending on health, low-income countries must improve their targeting of expenditures to those interventions that have the greatest marginal impact on the poor. For this, they need to focus on improved mechanisms of purchasing. The subsequent section dwells on this aspect of healthcare financing.