<!-- Start of picture text --> Pollcy Research<br><!-- End of picture text --> <!-- Start of picture text --> Population, Health, and Nutrition<br><!-- End of picture text --> WPS 852

- This paper a product of the Population, Health, anid Nutrition Division, Population and Human Rcsources Department-is part of a largereffort in the department to develop efficient and equitable health sector pricing and insurance strategies. Copies of the paper arc available free from the World Bank, 1818 H Street NW, Washington, DC 20433. Please contact Otilia Nadora, room S6-065, extension 31091 (20 pages'. February 1992.

To alleviate financial crises, many developing countries ate considering health insurance as an option for increasing available resources in the health sector. But besides affecting revenues, insurance also affects how efficiently and equitably health services are delivered.

To undersLand how insurance affecLs the delivery of health services, Kutzin and Barnum studied systems in Brazil, China, Korea, aiid Zaire. They looked at the following characteristics of insurance programs: the system for reimbursing providers, the services covered, the insurer's role, the extent to which beneficiaries help cover costs, and the proportion of the population covered by insurance.

Kutzin and Bamum use the following indicators for efficiency and equity in the delivery of health services: cost escalation, resource allocation, the use of specific medical technologies, and equity of access to services.

They conclude that insurers must take an active role in establishing institutional mechanisms (such as contractual obligations) that encourage health service providers to make efficient and equitable decisions about resource allocation. Incentives to providers are important because they determine the supply of services and can also tremendously affect demand.

As examples from Brazil, China, and Korea show, providers can increase the use of curative services so much that health care costs escalate rapidly, resource allocation in the sector is distorted, medical technologies are inappropriately used, and access to services is inequitable. To correct these distortions, a publ.c insurance institution should create incentives that encourage providers to behave in a manner consistent with social goals. This is achieved most easily with direct insurance, where the goals of the insurer and the provider are identical, but thirdparty payers can also take an active role.

Problems promoting efficient and equitable delivery of health services are magnified when an insurer serves merely as a financial conduit for reimbursing providers. Goals of efficiency and equity can be more effectively promoted by an insurance institution that actively organizes consumers' entry into the health system and removes the financial incentives that encourage providers to increase the volume and cost of services.

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