Institutional features of health insurance programs and their effects on developing country health systems

Many developing countries are considering insurance as an option for increasing resource availability in the health sector in order to alleviate financial crisis. In addition to its impact on revenues, however, an insurance program also affects the efficiency and equity of health service delivery. This article examines these consequences of health insurance by reviewing a number of critical institutional characteristics of insurance programs in four developing countries—Brazil, China, Korea and Zaire—and assessing their impact on the efficiency and equity of the health sector. The characteristics highlighted in the article are: the system for reimbursing providers; the services covered by insurance; the role of the insurer; the extent of beneficiary cost‐sharing; and, the extent of the population covered by the insurance program. Indicators of health sector efficiency and equity affected by these characteristics reviewed are: cost escalation; resource allocation; the use of specific medical technologies; and, equity of access to services. Efficiency and equity problems are found to arise from the financial incentives facing providers coupled with their powerful influence over both the supply and demand for personal health services. Experience suggests that these problems are magnified when an insurer serves merely as a financial conduit for reimbursing providers. Efficiency and equity goals can be more effectively promoted by an insurance institution which actively organizes the entry of consumers into the health system and removes the financial incentives that encourage providers to increase the volume and cost of services.