**Policy, Research, and ExternalPffairs**

**Population, Health, and Nutrition**

WPS 476

- This paper a product of the Population, Health, and Nutrition Division, Africa Technical Department -was written as part of a Regional Study on Health Financing, with financial support from NORAD and SIDA. It was presented at a seminar in April 1990 and will eventually be part of a World Bank technical paper. Copies are available free from the World Bank, 1818 H Street NW, Washington DC 20433. Please contact Karol Brown, room J9-112, extension 35073 (40 pages, including tables).

Based on a survey and analysis of health insurance in 23 countries in Sub-Saharan Africa, Vogel reached certain conclusions: Most Ministry of Health (MOH) budget expenses in these countries (with the possible exception of Tanzania and Ethiopia) are skewed to a small, well-defined population. The well-todo pay for the "best" health zare in the private sector, out of their own pockets or through insurance policies (usually from foreign sources).

Most poor people rely on the MOH budget as an implicit or informal formn of national health insurance or on traditional healers for whose care - they mnust pay out of pocket paying more for traditional healers and drugs than they might copay on health insurance. MOH spending is low in the geographical aieas where the poor live and for the kinds of health care the poor use, so the poor benefit little from these informal national health insurance systems.

The small middle class benefits most from health insurance in Sub-Saharan Africa. In the private sector, employers provide health care either directly or on contract - which is effectively health insurance. As government employees, they get preferential treatment under formal and informal health insurance, even national health insurance. The countries in Sub-Saharan Africa have not given the poor more, or more equitable, access to formal health insurance.

And the forms of health insurance adopted in Sub-Saharan Africa do not encourage efficiency.

Zimbabwe, for example, where private insurance has grown rapidly since independence, has used the U.S. Blue Crosc/Blue Shield model that existed in the United States in the 1960s and 1970s - in which the tax system heavily subsidized health insurance, all kinds of medical risk were covered (even for frivolous purposes), and neither the providers or consumers of health care were encouraged to restrain costs - so that health costs increased rapidly. One way or another, all the health insurance arrangements Vogel studied have the same perverse incentive effects that those open-ended, cost-based retrospective Blue Cross insurance payments had on health care providers.

Reform of these arrangements will be politically difficult. In countries with an implicit national health coverage, more equity for the poor requires that more of the MOH budget be directed their way. One way to do this would be to eliminate any favorable treatment government employees receive in the health care system. The availability of more private health insurance would similarly free more MOH resources. Govermments must examine the regulatory and incentive atmosphere to be sure they are not inhibiting the development of private health insuirance.

But they must also be careful that the private health insurance that does develop fosters more efficient health care. Prepaid capitated health insurance will encourage efficiency by health providers; deductibles and coinsurance have similar effects on health consumers.

Thc PRE Working Paper Series disseminates the findings of work under w?v in the Bank's Policy, Rcsearch, and Extemal AffairsComplex. An objective of the scries is to get these fuidings out quickly, even ifpresentations are less than fully polished. The findings, interpretations, and conclusions in these papers do not necessarily represt't official Bank policy.

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