73136 THE WORLD BANK TRANSITION TO A UNIVERSAL HEALTH INSURANCE SCHEME IN MALDIVES' Som il Nagpal1 and Gerard La Forgia' Summary H ealth insurance -- both voluntary and govemment-sponsored -- is of relatively recent origin in the Maldives. In September 20 II , the President announced an initiative to achieve universal health insurance for all Maldivians from January 2012. An internal analysis of the available resource base for this universal scheme being undertaken by the Governnlent of Maldives (GoM) suggested that the possible revenue sources for the universal scheme would include earmarked payroll taxes on formal sector employers, the existing spending on Madhana (the GoM's current scheme for civil servants, senior citizens, voluntary enrollees and other groups) which would be subsumed under the new scheme, some replacement of the supply- side spending and additional government subsidies to be met from new taxes being introduced. All of these, take together, would still be inadequate to meet the costs ofa Madhana-style health insurance scheme for every citizen in the country. Cost drivers affecting the proposed scheme would include the fee-for-service system which encourages supplier induced demand, use of proprietary drugs with no essentia l drug lists and no cost controls thereupon, lack of monitoring and IT systems, possible moral hazard, and lack of incentives to contain costs on the part of the insurer, providers and beneficiaries. Possible reforms that cou ld be implemented to contain costs and ensure sustainability include moving away from the fee- for-service model to contain undue escalation in scheme costs. Bundled package rates (moving to Diagnosis Related Groups- DRGs in due course) could be used for secondary and higher care. For outpatient costs, a global budget for each public health corporation (which would cover the cost of providing outpatient services as well as the subsidies required for public health corporations to fill the financial viability gap on account of offering services in sparsely populated and remote areas), moving in due course to Capitation (with perfonnance based incentives) could be employed at a health corporation level. Systematic costing and appropriate incentive mechanisms being put in place to encourage high productivity and cost containment would be pre-requisites for such provider payment mechanism reform. Another capitation system for preventive care costs through the Ministry of Health and Family (MOI-fF) and island councils could also be considered, though this would be implemented outside the 'insurance' system. Finally, additional pools of funds could be considered (beyond the insurance system) for specific purposes, such as a safety net which pays for high complexity care and a small pool offunds atthe corporation level to cover costs ofrefeITal transport. Continued effort will be required to ensure better targeted subsidies. The country could start with a minimum, essential benefit package which fits in the goverrunent's fiscal space. A phased approach needs to be considered, starting with basic service coverage and gradually adding benefits as administrative systems and targeting improve. Considering a legal framework to mandatorily bring in the formal sector employees (possib ly along with their family members) under the proposed universal scheme would provide a group which contributes to the scheme's costs, and also brings a large, healthy pool into the scheme, without adverse selection. Policy decision , logistics and modalities around the use of essential drug lists and procurement of these drugs in their generic form with due quality control processes will also need to be made to contain expenditures on drug costs, one ofthe fastest growing components of costs in the predecessor scheme, Madhana. A strong communication strategy would be required to introduce generic drugs successfully. An effective information management system should be maintained independently from any external entity hired to manage the scheme, with built in reports and business intelligence tools. Changes will also be needed in the proposed bill for Health Insurance in order to support such approaches. Finally, launching the universal scheme entails large and complex reforms, and will need adequate time and resources. On the other hand, implementing the universal health insurance scheme without these refonns would make it ineffective, inefficient and unaffordable. 'Health Specialist, South Asia Sector for Health Nutrition and Population, The World Bank 2Lead Health Specialist, South Asia Sector for Health Nutri lion and Population, The World Bank The bricfalso draws on carlier inputs provided by Pablo Gottret (Lead Econom ist, World Bank) and George Sch ieber (Consultant, World Bank). - --- -. - '--=- -_., - .~ • Introduction and Background to manage complex funds. provider payments. contracts and other cost containmcnt measures. Health insurance is of relatively recent ongm in the Maldives. Bo[h private volunt.ary health insur.mcc as well In the current context for the country. though polit ical as the social health insurance scheme, Madhana", have will to launch the universal health insurance scheme attained sizeable covemge of the country's population does indeed tlppctlr to be very strong. the economic within a shon period of time. 11le voluntary health situa(ion and the adminislrJtivc capacities may pose insura nce (VBI ) policies olTered by two commercial challenges which will need conscious and planned insurers covered a little over 10% of the country's efforts tosumlOunt. population in 20 IO. As of March 20 II. the social health insurance (51 -II) schcme, Madhana, administered by the DeSign and Institutional Features National Social Protection Agency (NSPA) under the A detaited analysis of key design and institutional Ministry of I-leahh and Family. covered lmother 77,500 attributes of a hetllth finlllldng system is necessary people, which is about 25% of the country's population, before any reform is undertaken. Identifying the within abouilwo YC:lI'sofitscx istenec. strengths. shortcomings and emerging issues of the Affordable health care is one of the five key pledges of currcnt scheme could highIight priority areas of reform. the Govcrnment of Maldives (GoM) and is among the The broader features o f financing systems to be main objcctives of the henlth sector rcfonns that the considered include (Gomel. Schiebcr and Waters, GoM is currently undcn aking. In September 2011,the 2008): President announced an initiative to offer universal De.\'ig ll Petllltre.\' health insurance to all Maldivians from January 20 12 , in order to achieve thc following, policy objectives: Financing: Choices for financin g health scrvices could have a huge impac t on how evcnly the burden of Enhance affordabi lity of health care and payment is distributed. In order to be a progressive promote equitable access to hea Ith care financing system. tools such as tax contribution ratcs. Mitigate helilth care related financial risks for payroll contribution rates, co·payment mechan isms and households and protect the citizens from health subsidies need to be evaluated and implcmented in the care related impoverishment right mix based on the count ry context.. Contribute to improvl,'(! quality and reliability of COI'emge (11/(1 Bel/ejil Package: Decisions regarding health care coverage 3nd bcnefi t package arc dependent on population need. political demand. available resources Improve the eOiciency of health insurance (hospitalsistafTfcquipmcnt), financial sustainability and provision via good governance and effective incremental changes to currcnt schemes, usc offiscal rcsources COl/sllmer Consume r protection PrOleelio,,: Ensure long-ternl fi scal sustainability of health mechani sms are designed to ensure free flow of insurance provision through eRectivc designing information and to protect the interests of consumers. of the health insurance system in terms of cost Tools to ensurc consumer protection may include containment measure and refonns in the renewabilit y c lau ses. tnms ferabilit y of rights, payment meehanismss complaints and sanct ions. Drawing frOIll intemational experience, the success of P/'OI';sioJl: The processes of provider emp:mc]ment, Universal Health Insurance progra ms is highly dependent on certain economic. social. political and provider payment rmd provider accreditation are crucial administrative factors, which include the following in dcvising an insur-mce progmm as if actively (Gonret and Schieber2006): levemged. they could deliver beller efficiency and quality ofcare. Ecollomic: A large fonnal sector of labor enabling higher payro ll contribut ions, characterized bv II/srilll lirm al Fetllll rf!s increasing urbanization trend.s Institutional and governance structures arc fundamen tal for the success of insurance Social: A large fornlal secto r of labor enabling higher schemes. Governance arrangements concern payroll contributions, characterized by increasing accounlabi!itics and relationships established [0 urb.1nization trends.. safeguard s ttlkeholder interests. It broadly Political: Strength. wi ll and consistency at the highest entails thc composi tion o f the board, selection of politicallevcl board mcmbers, rotation of members and associated institutional arrdngements (various Admill iSlrllfiw!: Govenlance and supervisory capacities units, MIS. internal & exle rnal aud it to overcome possible market fuilurcs such as moral mechanisms. job description, process maps etc) hazard and risk selection as well tldministrative capacity ofthescheme. - -. - - - . - --.- --. - - - - . ~ - -" ~- - -.., - , - -~ - Universal Coverage: Resources for Reform Is Universal Coverage feasible with the Fee-for· Service Madhana Model? An internal analysis o f the avai lable resource base by the Govcmmem ofMaldivcs suggcsts thai the possible revenue The aggregate expenditure for the Madhana scheme in sources for the universal SCOC'1TIC include the followi ng: 20 10 was 165 million MRF, which is more than double Government tax revenues the expenditure in 2009 (76 million MRF)_ Despite the Eannarked payroll taxes proposed to be levied on int roduc tion of mid-streum corrccti ve measures, fonnal sector employers, as applicable to the average costs per beneficiary have steadily escalated govemment itself as the largest fonnal sector since the launch of the schemc from 1.500 MRF in 2009 employer in the country t02,SOOMR F in 2011 . Eannarked taxes such as that on tobacco products At this pace, a model similar to Mtldhana cover may cost The existing spending on Madhana which will be Ibill ion MRF (or more) in 20 12 to cover a ll citizens subsumed in the new universal hcalth insurance (3,000 MRF · 330,000) ,lIld would presumably ra pidly scheme rise further, as comparcd to the 600111+ 700m MRF Some replacement of the supply-side spending on resource envelope indicated from the calculations health corpomtions who will now reccive above. de mand-side fu nding fro m the universal health II is emdal to understand key factors contri buting to this insurance scheme Icve l o f cost escalatiOIl . in order to account fo r them in Addi tion31 government subsidies to bc met from the new rc fonncd schemc. Thttsc drivers include the the new taxes being introduced foll owing: P3yroll contribu tions from the fonnal sector of labor. Fcc for service system and supplier induced which constitute II significant share ofthe overnil labor demand, ti S discussed later in this note markel may Also be looked at. Income rated contri butions could be mAndated for employers and Proprietary dmgs with no essential drug lisls employees for both public (civi l servants) and pri vate and no COSI controls thereupon sectors. Infonnlll sector contri butions, on Ihe other Lack of monitori ng and infonnat ion systems. hand_ are more difficult to implement and collect due 10 potential fraud and leakages. and Ihe administratively. Also from international experience, absence of ti mely in fonnalion to ta ke mid- it has been demonstrated thai oftcn contributions from course correctivc ac tion lhe infonnal sector have resulted in poor enrolmenl and adverscsclcction amongst themembcrs. Adverse selcction" and mornl hazard ~ Co-paymems and user fcc could be considered as an No incenti ves 10 contai n costs on part of insurer additional (albeit small) source of revenue and a (as there is no risk tr.msfer to them. and they mechanism of cost contuinmcnt by controll ing could actually cam more service fcc if the re are demand-side moral hazard. morc claims), providers (who again do nOI bear any risk and arc free to set prices) and Estill/llIe(1 resource base/or 20 12 bcncliciarics (as higher claim cosls for Madhana Aga ins t this bac k drop, Table I shows the resource do not direc tly translnte into higher contributions envelope estimated by the Ministry of Fi nance and orcurtailmcnt ofscrvices for lhem) Trcasury (M OFT) that could be generated from each of the above mentioned sourccs. Cost containment and sustainability of reforms Table I : Estimated resource base for the Consideri ng the esca lating costs of Ihc existing health universal health insurance scheme in 2012 insurance system and the li mited resource envelopes. _._s..- c... ,_... ••• -..... ••• possible reforms that could be implemented to contain costs and ensure sustainabil ity are disc ussed below. - -... - .... -. (--' ... __ ....... IOOO,..U ' f ~..,. ~ I j'. OI_MRr _MRf A. PrOl'ider 1'8)'0I('nt Systems: At prescnt. the Maldivian health care system is based on a fee- for4scrvice paymcnt mechanism Le_ service providers charge fees individually for each scrvice -....- ,......"... .(""" -- " _ MM del ivered. Empirical evidence shows thai this model incentivizes the supplier to create artificial demand (i.e., --- . .~ s upplicr induced demand) and leads to escalating health N... --.0''"'"'''''''' ..-rcn ffom I"r ",":it"""'" international experience strongly suggests moving away , .. ....,.....". by MOI-T) l ot-Jtem \'II.F from the fee+for-scrvice model to contain undue Eoo"'-d .xpo."'"..... '" 2012 fo< u....,'" escalation in scheme costs. This is particularly important Modhano ""'O<>¥< hl3l'''I "'PPIY _ .,ro:nJ""'" bu.lll'" in 2011 for Maldives when scaling up to universal health I"""'" pari ",,,~",~.,.y be ",,,,,<"I00\I ",(0) insurance, as a largc proponion of the country's Osed universal seheme would provide a grou p which contributes to the scheme's costs. and also brings a In addition to the insurance system, another capitation large. healthy pool into Ihe scheme. without adverse system ror preventive care costs th rough MOHF and selection. This larger pool with the inclusion of healthier local government councils could a lso be considered. people could also contribu te to achieving smaller though this would be implemented outside the insura nce premiums compared to the current requiremems. system. Income nlted contributions could be mandated for Finally. additional pools of timds could be considered employers (3%) and employees (1.5%) for both public (beyond the insurance system) forspeci fic purposcs: (civil servants) and private sectors. -- - -.- - -= - - - -- - - - - ~ ~~~~~-::- - - ~~ ~~ ~-- -~- = , • Essential Drug Lists and Drug Logistics: Policy coverage - whether it applies to all residents of decisions, logistics and modalities around the use of Maldives or only to citizens essential drug lists and procurement of these drugs in The present bill allows 'opting out' for better their generic form with due quality control processes coverage- this will affect an income rated will also need to be made. This will be particularly moder" and thus should to be reconsidered important in order to contain the expenditure on drug costs, which has been one of the fastest growing • It allows expansion of the benefits package components of the costs in the predecessor scheme, (through 'exemptions' to coverage exclusions) Madhana. To achieve the greatest economies of scale, by the Board, and also gives the minister-in- generic drugs would need to be procured centrally in charge some over-riding rights to make changes bulk and distributed to health service providers. The to Board suggestions. These discretions may be existing health facilities may need to create capacities to counter-productive and may lead to directly provide sucb drugs to the patients rather than unsustainable commitments, and so need directing patients to standalone phannacies . The reconsideration and possibly deletion required quality assurance mechanisms and regulatory The bill in its current fonn requires health systems will also need to be put in place before generic insurance cards- which may not be necessary if drugs are introduced. Furthermore, as this is going to be the citizen 10 cards can be used forthis purpose. a major change, a strong communication strategy would be required to introduce generic drugs successfully to The bill requires the entity managing the health patients and providers. insurance scheme to meet all requirements similar to commercial insurance providers in institutional: Decisions are required on the institutional Maldives- this may create regulatory and structure of the governing body for the scheme, compliance conflicts as the functions of this including decision on board nominees, their terms of agency may not be similar to a health insurance employment and applicability of civil service company which does retail, voluntary business. commission rules to them, whether there will be any risk-transfer (i .e., whether the insurance risk is retained The current bill also requires the agency to take in the NSPA or transferred to an insurer) and if risk up any social protection service asked by the continues to be retained by the NSPA, then on the President- which needs to be made more modalities for claim administration (whether this will be specific so that the agency is not required to go performed in-house or outsourced to a tbird party beyond its mandate. administrator). Next Steps Quality and Standards: In order to ensure patient safety Decisions such as the introduction of generic drugs, and appropriate quality of services, the scheme may also improving service delivery capac ity, establishing strong want to lay down standards and quality criteria for the regulatory frameworks and moving away from the fee- services provided to its beneficiaries by its network of for-service payment mechanism are large and complex providers upfront. reforms. Hence these tasks need to be phased out and the Information Systems: Effective management of the time-line for the implementation of the universal health proposed universal health insurance scheme would insurance scheme needs to be more realistic. Tasks require a sophisticated and effective health infornlation which we recommend be undertaken in the near future management system which should be maintained are:. independently from any external entity hired to manage Amend the health insurance bill Oil the lines the scheme, because depending on the same extemal suggested above entity will limit the re levance, timeliness and Develop a communication strategy for the availability oftbe data, as also affect tbe monitoring of proposed reforms the hired intermediary itself. The system should ideally be linked to all the agents involved in the operation of Detinean action plan for phased implementation the scheme and data should flow from all service Provider payment systems to be agreed upon, delivery points into the system, with built-in reports and costed and calculated business intelligence tools". Finalization of essential drug list and the Changes that may be needed in the present logistics for procuring and distributing generic bill for Health Insurance drugs In order to implement the proposed refonns, the • Clarify h'ansition arrangements for existing following changes might be needed in the proposed bill fonnal sector insurance policies and existing for Health Insurance (as of September 20 II). Madhana beneficiaries The bill should define applicability for -- _-'-- ~~-- - ~:2 ~--_ - ,~ -- - -..... __~ _ _ _ __ .. - ~~--=::::- __ ---. --- ~ ~ r<~ - -- . . , ~ Work to develop the MIS for the insurance Universal health coverage is a desirable goal, but it will scheme needs to commence immediately require con siderable time and resources to implement the required financing, governance and service delivery • Efforts being made to improve targeting of reforms successfully. On the other hand, it is also worth beneficiaries, some of which are already being emphasizing that implementing the universal health undertaken by NSPA, should move ahead insurance scheme without these refonns could make it steadily ineffective, inefficient and unaffordable. 'This policy brief reflects the discussions and contextual situation in September 20 II , when lhis brief was drafted, before the universal health insurance scheme, Asandha. was launched in January 2012. "See policy note I Oflhis set for 11 detailed discussion of the Madhana scheme. "Adverse selection. also called antisclection. is a tenn commonly used in the volun tary health insurance context and reflects the problem of asymmetric infonnation that affecl~ the operation of the insurance market, resulting in an im:quitab!c transaction. The insured. knowing the likelihood of even Is, chooses \0 insure against only those that pose a strong risk. The insurer, having less infonnation (in this case, about the health status orthe prospective insured), accepts the contract at tenns designed for lower risk situations. Adverse selection in the health insurance context could bc exemplified by pCiSons joining health insurancc schcmcs only at the time whcn they need medical services. "Moral hazard is all insurance-prompted change in behavior thaI aggravates the probability of an insured event in order 10 access benefits, for example, an insured's demanding medical scrvices or diagnostic tests not substantiated on mcdieal grounds (demand-sidc moral hazard). Providcr-induccd moral hazards include overservicing such as providing more consultations, diagnostic lests or olher services than are medically necessary (supply-side moral hazard). ' Under a capitation payment, the provider receives a fixed fee per individual per time period (month or year. for example) to provide all covered services. rcgardless of how many services are provided 10 any of the individuals covered. " Bus iness inteHigenee tools are advanced software applications used to identity data patlems and otherwise analyze, interpret. report and present data. '"Whcn contributions arc dctemlincd as a percent of income, higher contributions will be required from hig.her income groups. This may inccntivizc them to remain outside thc health insurance system and thus will significantly reduce the resources mobil ized from the fomlal sector contribution into Ihe system. REFERENCES: Gottret, P., GJ. Schieber, and H.R. Waters, eds. 2008. Good Practices in Health Financing: Lessonsfrom Reforms in Low- and Middle-Income Countries. Washington, DC : World Bank. Gottret, P., and George Schieber. 2006. Health Financing Revisited. Washington, DC: World Bank. Langenbrunner, John C. , Cheryl Cashin, and Sheila O'Dougherty. 2009. Designing and Implementing Health Care Provider Payment Systems How- To-Manuals. Washington, DC: World Bank. For nllther information, please contact Somil Nagpal at snagpal@ worldbank.org orOnika Vig at ovig@ worldbank.org D isclai mer: The views, findings, interpretations and conclusions expressed in this policy note are entirely of the authors and do not necessarily reflect the views of the World Bank, its affiliated organizations, members of its Board of Executi ve Directors, orthe governments they represent. The World Bank does not guarantee the accuracy ofdata included in this work. - - - ~- - - -:--- -~ - - - _ .----=--.:- -::... - ~ - ~~~-:~ - ~ -- .- -