

Friday, November 4, 2011

The factors facilitating Egypt’s transition to Universal Coverage

Egypt's Road towards Social Health Insurance - The Road to be Traveled (5)

What could be the factors that would speed Egypt’s transition to expand universal coverage using social health insurance?  We will try to respond to this question based on the experiences of other countries and opinions of international experts.  In principle, the lower the country has in terms of income per capita, the smaller the formal sector, the higher the prevalence of poverty, and the higher the dependency ratio, the more it would be challenging to initiate or scale up SHI. 

Economic Development, in terms of a country’s annual general level of income (GNI) and growth rate. The greater the income per capita the more capacity enterprises and citizens will have to prepay SHI contributions.  The higher the wages and salaries, the more opportunity to finance a broader benefit entitlements and the less there could be an economic burden of payroll tax. Tax revenues are likely to increase with income, facilitating the subsequent channeling of any government subsidies into SHI. Steady economic growth, therefore, is likely to enhance the capacity to prepay.

In 2010 before the January 25th revolution, Egypt’s GNI was about USD 2,440 and its growth rate ranged between 5-7% annually. As a result of the slow in economic activity post the revolution, growth rate is predicted to go down to 2% or less for 2011. Egypt’s current GNI is similar to the GNI of those countries adopting SHI at the time of its introduction such as Germany (USD 2,237 in 1883), Austria (USD 2,420 in 1887), Belgium (USD 1,808 in 1851), and Japan (USD 2,140 in 1922). The same applies to growth rates.  Economic growth was either high or at least steady for each of these countries during the transition period.

Structure of the Economy, in terms of the relative sizes of the formal sector and informal economy. Many developing countries do have sectors where a notable part of employment is informal, thus facing difficulties in assessing incomes and collecting contributions from workers who do not receive a formal salary. This hampers protecting those working in the informal economy as SHI scheme relies on contributions. The larger the formal sector employment, the ease it would be to administer mandated payroll tax on employers and employees.

In Egypt, informality has been on the rise mainly due to two reasons: (i) a reduction in employment by the public sector and replacing those by employment using temporary contracts; and (ii) creation of most of the jobs in the private sector that are informal. More than half of those working are in the informal economy (53%) with an increased estimation of 20% of pre-revolution level. Looking more in-depth, 58% of those working don’t contribute to any social security scheme, 63% are working without contract, and 13% are working without being paid. As the public sector is shrinking and being perceived as the place providing “safer” jobs, and given the private sector’s inability to produce formal sector jobs, the challenges for coverage by social health insurance increase. 

Urbanization, determined by the distribution of the population intended to be covered. Population living in urban areas, with minimum quality of infrastructure and communications, and higher population density, is likely to be easier to cover than a widely dispersed rural population. About 43% of Egypt is urbanized with governorates ranging from high as 100% urbanized such as Cairo to a low as 22.5% such as Sharkia.  The more urbanized the governorate the more insured people would be present.

Ability to administer, in terms of availability of skilled labor force with capacities in bookkeeping, banking, and information processing; and related markets, such as in financial services, other insurance businesses that can provide appropriately trained personnel, actuarial, and legal services. Presence of a sound administration of social security system is in place would be a favorable factor.

Although HIO has been present for about half a century, yet most of its experience is in service provision and has lost a number of experts who understood insurance without being properly replaced. The HIO payer functions will need efforts to be built and investment in this area would be a pre-requisite if Egypt would continue to pursue health insurance as a financing scheme for universal coverage. 

Poverty Prevalence, in terms of size of government’s contribution to subsidize their premiums and co-payments. The higher prevalence of poor and near poor Egyptians, the more the government would need to contribute and the higher the burden is on the government’s budget. The society as a whole, and not only the government, would need to define what appropriate level of solidarity it is ready to contribute to cross subsidize the services of its poor people either fully or partially for the near poor.  The higher the level of solidarity, the more SHI is able to provide protection to its most vulnerable segment of its population. While policymakers could impose solidarity; however, without a society that believes in solidarity, it will be difficult to sustain SHI.   

Two more important factors that need to considered.  The first is the presence of efficient functioning provider networks, in terms of (i) ability to provide an improved access to members; (ii) ability to provide greater choice of providers to members, and (ii) ability to provide an environment that allows for quality-based competition among providers.  The second is the government’s capacity to regulate for quality and manage grievance procedures.

In summary, Egypt’s ability to expand universal coverage through SHI will depend mainly on the following: (i) its ability to recover from the aftershocks of the revolution and resume its pre-revolution high growth rate, as well increase its level of GNI; (ii) its ability to formalize its economy with protected jobs; (iii) its ability to become more urbanized; (iv) its ability of building its health insurance administration system; (v) its level of poverty and society’s willingness to cross-subsidize the poor; (vi) its ownership of an efficient and functional provider network; and (vii) its ability to regulate.    

Until we meet again...

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