Bismarck’s Miraculous and Unfortunate Re-emergence
By Abdo Yazbeck, Economics Advisor for USAID’s Health Finance and Governance Project
The World Health Organization’s (WHO) Joe Kutzin, one of the most respected health finance economists in the world, famously declared some years back that Bismarck and Beveridge are dead. The statement reflects a nuanced agreement among health finance specialists that too much time and energy were being wasted debating the sources of health care financing and not enough was being spent on the functions of health care financing.
Bismarck & the return of social health insurance
Otto von Bismarck was the German chancellor who unified the country in the 19th century, using the health financing system to aid in the process. A Bismarckian health system typically refers to one that relies on labor or payroll taxes, pooled as an insurance fund or funds, as the main source of health care financing. What later became known as social health insurance (SHI) is a direct reflection of the Bismarckian system.
Bismarck is back, with a number of low- and low middle-income countries (LICs and LMICs) starting SHI programs based on a model created in 1880s Germany. This is unfortunate because SHI can be the fast lane to a government-subsidized, two-class system that exacerbates inequity. It is also unfortunate because most of the countries pursuing SHI systems do not have the basic conditions necessary to successfully implement an SHI system.
What makes social health insurance successful?
In 2007, the World Bank Institute published an important book, Social Health Insurance for Developing Nations, written by William Hsiao and Paul Shaw. Learning from the successes and failures of SHI programs across the development spectrum, Hsiao and Shaw laid out a set of characteristics associated with successful SHI. The table below lists these characteristics, and notes the extent to which LICs and LMICs possess them.
Why is social health insurance re-emerging?
So, with the enabling conditions for successful SHI absent in most LICs and LMICs, why is the push for SHI re-emerging? I offer two informed guesses based on countless conversations with government officials:
1) There is a common myth that SHI will somehow bring more money to ministries of health. While it is true that having an insurance fund limits the interference of finance ministries, the expectation that it will result in more money for health ministries has been disproved repeatedly.
2)People tend to misinterpret WHO’s excellent Universal Health Coverage push as somehow meaning insurance.
The risks of launching an SHI program in countries without any (or most) of the conditions needed for success are serious and negative. SHI programs can be a non-pro-poor drain on public funding. They can suppress growth of the formal economy, and therefore the tax base. SHIs risk institutionalizing a two-class health system and creating a political constituency (those covered by SHI) that resists letting in poor people. Finally, SHIs risk giving insurance a bad name in countries where the concept is new, complicating future efforts to enact effective insurance systems.
Stronger health systems create better coverage
A concerted effort is needed to apply the lessons of the past and ensure that future health investments do not repeat previous mistakes. The Health Finance and Governance Project has helped more than 40 partner countries strengthen their health financing so that high-quality, essential health services are widely available. This has included strengthening appropriate health insurance schemes to cover more people and help countries move towards Universal Health Coverage. A future HFG blog will discuss different ways countries are tackling health insurance, and how traditional SHI programs are being adapted and changed to reflect the economic realities of labor markets and informal sectors.
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Abdo Yazbeck is the Economics Advisor for USAID’s Health Financing and Governance (HFG) Project. He has over 25 years working as a health economist for HFG and at the World Bank. He has authored/edited seven books, including “Africa’s Demographic Transition: Dividend or Disaster,” “Better Health Systems for India’s Poor,” “Learning from Economic Downturns” and “Attacking Inequality in the Health Sector.” He has a Ph.D. in Health and Labor Economics.
HFG is a six-year project funded by the U.S. Agency for International Development under Cooperative Agreement No: AID-OAA-A-12–00080. The HFG project is led by Abt Associates in collaboration with Avenir Health, Broad Branch Associates, Development Alternatives Inc., Johns Hopkins Bloomberg School of Public Health, Results for Development Institute, RTI International, and Training Resources Group, Inc. The views expressed within this publication do not necessarily reflect the views of the U.S. Agency for International Development or the U.S. Government.
