92699 Knowledge Brief Health, Nutrition and Population Global Practice CAN SOCIAL HEALTH INSURANCE BE SUCCESSFULLY INTRODUCED AND EXPANDED IN PAPUA NEW GUINEA? May 2014 KEY MESSAGES • In the current context, the introduction of comprehensive Social Health Insurance is not feasible or sustainable in Papua New Guinea (PNG). • Social Health Insurance (SHI) is likely to be a further drain on government revenues and human resources because of the initial start-up costs and the additional government spending required for the formal sector coverage. • The introduction of SHI should only be revisited when the technical enabling conditions more favoured to this scheme are developed. Cross-country comparisons have identified several Successful introduction of SHI financing in PNG will, enabling conditions required to ensure the in part, depend on the feasibility of expanding 1 coverage to the entire population, including the sustainability of payroll tax-based systems . These are: (i) a large formal labour market; (ii) a growing informal sector. A second important factor is how an economy; (iii) an administrative capacity for collection; increase in contribution rates will affect labour and and (iv) good regulatory and oversight structures. Political capital markets. Expanding SHI coverage to the informal willingness is another important factor. The brief below sector will be challenging in almost all contexts. The discusses in detail the technical enabling conditions in the population in the formal sector is relatively easy to enrol context to introduce and expand social health insurance in and collect contributions from due to the availability of PNG. employment earnings records. The population in the informal sector is typically not affiliated with any Is the country’s labour market supportive? organisation from which to enrol and collect premiums. They are also poorer and less able to afford premiums. According to the 2000 Census, PNG’s population is predominantly in the informal sector; 67.5 percent of economically active citizens aged 10 years or over 1 Carrin, G., and C. James. 2004. Reaching Universal Coverage via Social were in subsistence and self-employment, while 10.4 Health Insurance: Key Design Features in the Transition Period. percent were in formal wage employment. Discussion Paper Number 2. Geneva: WHO. Financial support for this work was received from the Australian Department of Foreign Affairs and Trade. HNPGP Knowledge Brief • In contrast, countries that have chosen payroll taxes formal sector share of employment by 8-10 percent and a 3 as the primary source of funding in Europe, Central reduction in total employment by as much as 6 percent . Asia and Latin America benefitted from having a large percentage of the working-age population employed 2 in the formal sector . Is there adequate administrative and Moreover, Eastern and Central European countries where technical capacity? payroll taxes are the predominant source of financing have a tradition of large state enterprises and civil service institutions with a large pool of formal sector employers Effective collection and pooling of SHI revenue that enables a reliable source of payroll contributions. requires a high degree of administrative and technical capacity within the country. Administrative capacity refers to the organisational infrastructure needed to register members, distribute membership cards and Are the country’s macroeconomic collect contributions. Technical capacity refers to the skill- conditions supportive? set needed to operate a health insurance program, including bookkeeping, banking and actuarial skills, as 4 well as information systems for monitoring performance . The most effective way to scale up SHI coverage is The capacity needed to design and implement SHI is for the government to use general revenues to limited at present. It is recommended that the necessary subsidise premium payments for the population in educational qualifications and other skills–for example the informal sector. The macroeconomic conditions are actuaries–are introduced first and SHI implementation important to consider because they determine whether it postponed until such skilled personnel exist. is fiscally realistic to finance the expansion of coverage to the informal sector using general revenues. The few Is there adequate regulatory capacity? countries that have followed this model have employed substantial general tax revenues to fund the social insurance schemes and extended insurance coverage on Regulatory capacity to pass and enforce SHI laws is a mostly non-contributory basis. In addition to the need to important to ensure the long-term financial increase taxation to extend insurance coverage, it should sustainability of SHI programs. Mandatory enrolment is also be noted that a significant length of time is required desirable in order to have a broad funding base, however, to extend insurance coverage to the informal sector in settings where regulatory capacity is weak and the population. For instance, it took Costa Rica 29 years from government is unable to enforce mandatory enrolment, the enactment of SHI legislation to effective coverage of adverse selection becomes a problem. Individuals with 85 percent of the population. low expected health care costs do not enrol, while those with higher expected health care costs do. Costs rise relative to the SHI funding base, threatening the long-term In PNG, significant additional health spending would financial sustainability of SHI. Non-enrolment of formal be needed to expand SHI to the 80 percent or more of sector workers in insurance schemes and evasion of the population that is in the informal sector. Moreover, payments among those who are enrolled also means that the establishment of SHI involves relatively high start-up SHI is no more efficient than the collection of tax revenue. costs, which will also have to be financed through general In PNG, the necessary regulatory capacity has not yet revenues. been developed and sufficient suspicion around the allocation of resources already exists amongst the general population. The presence of a significant private Payroll taxes can also have a negative effect on future insurance market often provides the basis for developing economic growth, which in turn is critical for such regulatory capacity. The small size of the private expanding the revenue base. A review of labour insurance market in PNG precludes this. markets in OECD countries found that adopting SHI in preference to revenue financing led to a reduction in the 2 Ensor T., and R. Thompson. 1998. “Health Insurance as a Catalyst to Change 3 in Former Communist Countries?” Health Policy 43(3): 203-18. Wagstaff. 2009. Social health insurance vs. Tax-financed health systems: evidence from the OECD. Washington DC: World Bank. 4 Carrin and James, 2004. Page 2 HNPGP Knowledge Brief Conclusion In the current context, the introduction of comprehensive social health insurance is not feasible or sustainable in PNG. The feasibility and sustainability of SHI as a health financing mechanism depends on how quickly it can be scaled up to cover the entire population. The formal sector is very small and in this context, SHI is likely to be a further drain on GoPNG revenues and human resources because of the initial high start-up costs and the additional government spending required for the informal sector coverage. It is not likely to bring in significant new funding for health. Moreover, many of the prerequisites needed for effective implementation are also not in place. Administrative and technical capacity to run a comprehensive SHI scheme is currently limited. The introduction of SHI should only be revisited when the technical enabling conditions more favoured to this scheme are developed. References Carrin, G., and C. James. 2004. Reaching Universal Coverage via Social Health Insurance: Key Design Features in the Transition Period. Discussion Paper Number 2. Geneva: WHO. Ensor T., and R. Thompson. 1998. “Health Insurance as a Catalyst to Change in Former Communist Countries?” Health Policy 43(3): 203-18. Wagstaff. 2009. Social health insurance vs Tax-financed health systems: evidence from the OECD. Washington DC: World Bank. Please contact Xiaohui Hou at xhou@worldbank.org or Aparnaa Somanathan at asomanathan@worldbank.org for any inquiries on this work. The Health, Nutrition and Population Knowledge Briefs of the World Bank are quick reference on the essentials of specific HNP-related topics summarizing new findings and information. These may highlight an issue and key interventions proven to be effective in improving health or disseminate new findings and lessons learned from the regions. For more information on this topic, go to: www.worldbank.org/health Page 3