My Say: How to sustainably finance universal healthcare

This article first appeared in Forum, The Edge Malaysia Weekly, on August 16, 2021 - August 22, 2021.
My Say: How to sustainably finance universal healthcare
-A +A

To achieve universal health coverage (UHC), a country needs a system that provides equitable access to high-quality healthcare, which requires sustainable financing over the long term. Publicly provided healthcare should be on the basis of need, which is a citizen’s entitlement, regardless of means.

But recent decades have seen healthcare trending towards a two-tier system — a perceived higher-quality private sector and lower-quality public services. One typical consequence is medical doctors, especially specialists, leaving public service for much more lucrative private practice.

This “brain drain” has led to longer waiting times and complaints of deteriorating public service quality, as more people with means turn to private facilities. As costs in private hospitals are high and increasing, this causes those who can afford private health insurance to sort of turn to it as if to “hedge their bets”.

If these trends are not checked, the gap between the private and public health sectors in terms of charges and quality will grow, increasing polarisation in access to quality healthcare between the haves and have-nots.

Healthcare financing

Financing arrangements are key to developing an equitable healthcare system that is financially sustainable in the long run. For universal coverage and equitable access, health financing should be based on social solidarity through cross-subsidisation, with the healthy financing the ill, and the rich subsidising the poor.

Experience the world over shows health markets functioning poorly, both in financing and providing healthcare. Furthermore, heavy reliance on market solutions has contributed to spiralling costs and constrained healthcare access.

A voluntary private health insurance (PHI) scheme cannot be financially viable in the long term as individuals with lower health risks are less likely to buy insurance from a scheme which they see as primarily benefitting others less healthy.

Since voluntary schemes are usually based on PHI, government support for such schemes would strengthen these companies. There are good reasons to be wary of the growing influence of PHI interests in healthcare financing discussions.

Premiums for PHI are risk-rated, meaning that individuals with pre-existing conditions and higher risks — such as the elderly, or those with family histories of illness — will face unaffordably high premiums or basically be denied coverage.

“Moral hazard” and “supplier-induced demand” in a “fee-for-service” reimbursement system encourage unnecessary investigations and over-treatment, or costly monitoring to limit such abuse. Hence, PHI companies use “managed healthcare” services to contain costs by limiting investigations and treatments.

Voluntary PHI schemes charge high premiums while fee-for-service payments escalate costs, which inevitably raise premiums. Thus, the US spends the most on health in the world but with surprisingly modest health outcomes to show for it.

Much public expenditure is needed to insure the poor, especially those with prior health conditions. Achieving UHC would require costly public subsidisation and this would not be cost-effective, let alone equitable.

Government support for PHI companies would strengthen their growing presence and influence, typically involving transnational insurance conglomerates. However, PHI companies are likely to try to undermine others threatening their interests.

Social health insurance

Unlike voluntary health insurance (VHI), social health insurance (SHI) is usually mandatory to cover the entire population. Although often proposed and promoted with the best of intentions, it is also important to consider the limitations and problems of SHI.

SHI would effectively require collecting an additional “payroll tax” from the public. This could be designed with various distributional consequences, for example, if flat, it would be regressive. As an additional tax would reduce take-home incomes, SHI schemes have been difficult to introduce.

Like PHI, SHI also has inherent tendencies for over-treatment and cost escalation due to “moral hazard” and “supply-induced demand”. These require costly, strong and typically bureaucratic administrative controls.

Surviving SHI schemes owe their success to specific reasons, for example, in Germany, it evolved from its long history of union-provided health insurance. But most working people in developing countries are not in formal employment, let alone unionised. Hence, SHI would have difficulty gaining broad acceptance.

In any case, Germany and other countries with successful SHI in the past have been moving to greater revenue funding of healthcare as formal employment and the number of unions decline with changing labour arrangements.

With SHI, government revenue would still have to cover the indigent and poor. It is difficult to collect premiums from the self-employed, or the casual and informal workers not on regular payrolls. But universal coverage would not be achieved without including them.

Revenue-financed healthcare

Inherited revenue-based healthcare financing is basically sound and should not be replaced due to other healthcare system problems. In most societies, revenue-sourced healthcare financing can be retained, reinforced and improved by:

• Increasing government healthcare allocations;

• Reducing “leakages” by eliminating waste, corruption and cronyism;

• Promoting “developmental governance” and competitive bidding; and

• Raising government revenue, especially from more progressive taxation, which includes wealth, “windfall” and “sin” taxes and especially on activities that worsen health risks such as tobacco and sugar consumption.

Revenue-financing avoids many administrative costs incurred by PHI and SHI. It has no need for an elaborate parallel system, costly mechanisms and more staff to register, track and pay SHI contributors and beneficiaries.

Compared to PHI, SHI seems like a step forward for countries with weak or non-existent public healthcare systems. But moving from revenue-financing to SHI would be a step backwards in terms of both equity and cost-effectiveness.

SHI requires additional layers of healthcare system administration — to enrol, collect, ascertain coverage, determine benefits and make payments — which incur unnecessary costs compared to revenue-financing.

Hence, such insurance systems involve much more per capita health spending, raising it by 3% to 4%. Despite being much more costly than revenue-financed systems, they do not have better health outcomes.

As SHI effectively imposes a payroll tax, it discourages employers from hiring employees with proper labour contracts. Hence, SHI was estimated to reduce formal contracts by 8% to 10% and total employment by 5% to 6% in rich countries.

International evidence clearly shows progressive tax-funded public health systems are more equitable, cost-effective and beneficial than SHI. Public health programmes that need popular participation, such as breast or cervical cancer screening, have worse outcomes with SHI compared with revenue-financing healthcare.

A public health programme can be best achieved by improving or developing a revenue-funded healthcare system, with additional resources deployed to expand and enhance primary healthcare and better service conditions for medical personnel. Strengthening public healthcare services can do much, not only to improve staff work conditions but also uplift morale and pride in their work.


Mary Suma Cardosa is a medical doctor specialising in pain management and past president of the Malaysian Medical Association. Chan Chee Khoon is a health systems and health policy analyst with postgraduate training in epidemiology. Chee Heng Leng is an academic researcher working in the area of health and healthcare policy. All are members of the Citizens Health Initiative. Jomo Kwame Sundaram, a former economics professor, was United Nations assistant secretary-general for economic development. He is the recipient of the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought.

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's AppStore and Androids' Google Play.