A presentation on four case studies' performance along five dimensions of governance within the context of mandatory health insurance. The dimensions are: coherent decision making structures, stakeholder participation, transparency and information, supervision and regulation, consistency and stability.

1. Governing in
Mandatory Health
Insurance
A World Bank
Publication
Introduction:
A Conceptual Framework
Dr. Alaa Hamed
September 2021

2. Governing in
Mandatory Health
Insurance
A World Bank
Publication

3. Outline
• What is Mandatory Health
Insurance
• Evolution of MHI in Western
Europe and Latin America
• Dimensions of Governance
within MHI context
• Conclusions

4. If men were angels, no
government would be
necessary
If angles were to govern
men, neither external or
internal controls on
government would be
necessary.
In framing a government which
is to be administered by men
over men, the great difficulty
lies in this:
The government needs first to
be enabled to control the
governed, and in the next place
obliged to control itself.
James Madison, Federalist Papers, No. 51., 1788

5. Mandatory health
insurance (MHI) systems
established in more than
60 countries, beginning
with Germany in late
19th century.
Rely on payroll taxes,
some degree of
autonomy.
In considering establishing or
reforming MHI systems, questions
arise on how schemes are
structured, function, how well they
perform.
Literature available on defining
benefits, costing services, creating
payment mechanisms with proper
incentives for providers.
But, little available on how MHI
systems are structured institutionally
and governed.

6. MHI is a system that,
simply, pays the costs of
health care for those
who are enrolled and in
which enrollment is
required for all members
of a population.
Distinct from largely voluntary
systems, and from those in
which out-of-pocket payments
predominate.
Difficult to distinguish from
those in which government
services are provided at little or
no cost to the population,
except that insurance function
is explicit, provision often
separated from financing.

7. Mandatory Health
Insurance is not a simple
market or government
service for several
reasons.
First, strongly affected by problems
associated with insurance markets
(adverse selection, moral hazard),
and with asymmetric information
making it difficult to provide services
efficiently and to satisfy all
stakeholders.
Second, MHI has very high visibility
and plays a central role in national
political debates and institutional
development making it difficult to
analyze MHI without an appreciation
for the broader social movements
that have shaped it.

8. Evolution of Insurance
Systems In Western
Europe
First, Voluntary
Associations Emerged
In Western Europe in the Middle Ages,
voluntary associations provided their
members with assistance in times of medical
need, mostly as income support.
By mid 19th century, numerous associations
offered health insurance, with a wide mix of
affiliation rules—on basis of occupation,
place of employment, place of residence, or
even ethnicity.
• By 1885, Sweden had dozens of sickness
funds covering 10 percent of the
population.
• In 1876, Germany had 5,239 officially
recognized regional sickness funds
insuring about 5 percent of the
population.

9. Evolution of Insurance
Systems in Western
Europe
Second, Voluntary
Associations
Transformed into Broad
National Health
Insurance Systems
Transformation was driven by political
context, struggles between employers,
labor groups, and state.
In 19th century, industrialization led to
growth of organized labor, an important
political actor threatening political elites
who responded by pursuing
“corporatist” policies.
Political elites channeled labor demands
through formal associations to preserve
power and privileges in return for
concessions: shorter work weeks,
unemployment insurance, pensions, and
health benefits.

10. Evolution of Insurance
Systems In Western
Europe
Third, the Bismarckan’s
Insurance System was
Created.
in 1883 after the creation of
Germany as a nation-state and to co-
opt labor demands, Bismarck
explicitly enacted MHI, knitting
existing sickness funds into a
broader, formally recognized, and
publicly supported network of
insurance.
The principle of government
engagement with employers,
workers, and intermediating
associations was established.
Universality was not achieved until
much later.

11. Evolution of Insurance
Systems In Western
Europe
Then, the Bismarckan’s
Insurance System
Expanded.
MHI emerged as the dominant
model in Austria (1887/8), Belgium
(1894), Denmark (1892), the United
Kingdom (1911), Switzerland (1911),
France (1920), and the Netherlands
(1941).
Assisted by relatively modest medical
care costs, rapid economic growth,
and formalization of the labor
market.

12. Evolution of Insurance
Systems In Western
Europe
Coverage and Benefits
Expanded
Coverage extended gradually to self-
employed and agricultural workers,
to dependents, and ultimately to the
“non-contributing” population (for
example, retirees, the unemployed)
to reach “universal” coverage.
Benefits extended to include a wide
range of services from the treatment
of acute events to primary care
consultations and medications.

13. A New Development
The Emergence of the
National Health Systems
& Government-Funded
Health Care Services In
Western Europe
Following World War II, Sweden and
UK replaced the MHI model with a
system based on government
payment of providers, financed
through general tax revenues.
Another wave replaced MHI with
government-funded health care
services toward the end of the last
century after the fall of authoritarian
regimes in Portugal (1979), Greece
(1983), and Spain (1986).

14. Pushing for Reforming
MHI systems
Rising costs and concerns
over quality of care pushed
for active discussions about
reforming MHI systems
although they continued to
enjoy strong popular support
in many countries.
These countries experimented with
organizational changes:
• consolidation of funds,
• right to choose sickness fund.
Also changing systems’ designs:
• encouraging wealthy to opt out of
the publicly subsidized system,
• increasing government control over
setting contribution rates,
• introducing selective contracting,
• modifying formulas for cross-
subsidies.

15. Evolution of Insurance
Systems In Latin America
Latin American countries began to
debate and enact MHI systems
simultaneously with Western
European countries; some without
development of voluntary
associations.
European migrants importing
insurance forms led to the origin of
the Obras Sociales in Argentina—
sickness funds managed by labor
unions—and the Mutualistas in
Uruguay—many of which were
founded as voluntary occupation-
based associations.

16. Evolution of Insurance
Systems In Latin America
Incorporation into social
insurance schemes
At end of 19th century, many Latin
American states established
“corporatist” relations between
workers and employers and the
state.
As part of these political
developments, public and formal
sector workers were incorporated
into social insurance systems.

17. Evolution of Insurance
Systems In Latin America
In contrast to Western
Europe, many Latin
American countries did not
experience sustained
economic growth or
formalization of the
workforce at a pace
sufficient to draw in the
majority of the population.
Chile, Costa Rica, and Uruguay have
come closest to universalizing health
insurance coverage through social
security schemes, while at the other
extreme, countries such as the
Dominican Republic have less than 10
percent of the population affiliated with
MHI.

18. Evolution of Insurance
Systems In Latin America
In countries where coverage has not
become universal, large disparities have
emerged between those covered by
MHI and those without; and MHI
organizations have acted to preserve
privileges for their affiliates even when
it required subsidizing deficits with
general revenues.

19. Conclusion
In certain contexts, this
model appears to have been
effective at universalizing
health care insurance, while
in others it appears to have
locked in privileges for a
minority.
The experiences of Western Europe
and Latin America show the strengths
and weaknesses of MHI as it evolved
in the 20th century.

20. Conclusion
The model has also taken on
a variety of forms.
In Western Europe, as well as
Argentina, Chile, and Uruguay,
multiple insurance funds, woven into
a nationally regulated system, with
arm’s-length relationship to providers
are the norm.
By contrast, in most of Latin America
(except those countries noted above),
single insurance entities with direct
provision of care are common.

21. Broad definitions of
governance attempt to
encompass all relevant
factors that influence the
behavior of an organization.
For MHI entities, these
factors include its
relationship to the
government, its members,
any other players
(employers), health care
providers, and other insurers
(competitors).
Narrower definitions look
specifically at the “control”
mechanisms that are used to
hold an entity accountable.
• Mechanisms by which board
members are elected
• Scope and style of
government supervision
• Scope of managerial
discretion in defining
benefits, contributions rates
and negotiating contracts.

22. An Analytical Framework is
needed to establish relationships
between different actors and to
focus on how insurance entities
are to be held accountable to
certain agents, such as
beneficiaries, governments or
employers.
The general rules for good
governance are simple: align
incentives and make information
available and transparent.

23. Achieving this requires a
variety of mechanisms,
which can be grouped into
five dimensions of
governance:
• Coherent decision-making
structures
• Stakeholder participation
• Transparency and information
• Supervision and regulation
• Consistency and stability

24. Performance of Governance
Dimensions along Four Case
Studies
Four cases (mentioned below)
perform reasonably well in terms of
insurance coverage, access to health
care services, population health, and
financial protection relative to other
countries in the world.
Still, complaints are aired in the
media and legislatures about rising
costs (in all four countries, despite
widely different levels of spending),
waiting lists (particularly in Estonia
and the Netherlands), employee
absenteeism and evasion (particularly
in Costa Rica), and health care quality
and equity (particularly in Chile).

25. Coherent decision-making
structures
These structures enable those
responsible for decisions:
• to be endowed with the
discretion, authority, tools, and
resources necessary to fulfill
their responsibilities
• to establish consequences (for
their decisions) that align their
interests with that of the
overall good performance of
the system
The weakest dimension in all four
countries.

26. Coherent decision-making
structures
• Public ownership—National
Health Insurance Fund (Chile -
Fondo Nacional de Salud or
FONASA)
• Private ownership (Costa Rica -
Instituciones de Salud Previsional
or ISAPREs)
• Centralized management (Estonia
- EHIF)
• Decentralized management
(Netherlands Sickness Funds).
At one extreme, the private health
insurance funds in Chile (ISAPREs)
have the authority to set their
own premiums, design the
benefits package, and negotiate
prices with health care providers.
In contrast, Estonia’s EHIF does
not set its own contribution level,
nor does it define the benefits
package.

27. Coherent decision-making
structures
With regard to ownership and legal
status, mandatory health insurers can
function reasonably well
• As part of the executive branch (in
Chile),
• as autonomous public institutions
(in Costa Rica and Estonia)
• as nonprofit private entities (in the
Netherlands).
If a country has a well-functioning
public sector, direct public
administration might be the best
option.
Where the public sector is less
effective, autonomous public
institutions could be considered,
with special attention to assure
accountability, avoid capture by
special interests, and ensure
effective tools for managing
personnel.

28. Coherent decision-making
structures
Given the political sensitivity of health
insurance, governments are often tempted
to intervene in a wide range of financial
and managerial decisions.
Managing this tendency for undue
interference is likely to work better when:
• the respective responsibilities of the
government and the insurance schemes
are distinct and clear,
• independent authorities (for example,
courts) can effectively enforce that
division of responsibilities,
• each actor has authority and discretion
over those decisions for which it is held
accountable
On the definition of roles and
responsibilities, many different
allocations of decision-making
powers can function well, but
responsibility for making decisions
has to be matched with appropriate
authority, resources, and managerial
discretion.

29. Dimensions of Governance
Stakeholder participation
It is rooted in the premise that
stakeholder views are integral to
meaningful governance and
should be incorporated during the
process of decision making

30. Stakeholder participation
Supervisory Boards are the highest
decision-making authorities within
Costa Rica’s Social Security System
(Caja Costarricense de Seguro Social
or CCSS) and the Estonian Health
Insurance Fund (EHIF).
The sickness funds in the Netherlands
also have independent directors
serving on supervisory boards; while
Chile’s national insurance fund
responds directly to the President.
The four countries performs
well on the dimension of
Stakeholder participation.

31. Stakeholder participation In Western Europe, members of
supervisory boards were explicitly
selected to represent particular
social groups or interests, such as
business, labor, government, and
beneficiaries;
However, criticized for not
representing the interests of
patients nor adequately
controlling corruption and
conflicts of interest.
Members of Supervisory
Boards are selected to
represent the interests of
organized groups.

32. Stakeholder participation
Alternatively, is to include
representatives from a wider
range of actors, as in Estonia.
In other cases, countries have
chosen to create boards of
independent professionals and
“experts,” as in the Netherlands,
or to subordinate the insurers to
direct government administration,
as in Chile.
Members of Supervisory
Boards are selected to
represent the interests of
organized groups.

33. Dimensions of Governance
Transparency and information
Ensure that information is available
to those who can make decisions—
whether financial regulators making
sure that insurers have adequate
funds to fulfill their obligations,
beneficiaries seeking redress for
improper treatment, or the general
public pressuring government
authorities to prosecute misconduct.
Support the rule of law requiring
regulatory authority to be
legitimately exercised only in
accordance with written, publicly
disclosed laws adopted and enforced
in accordance with established
procedure

34. Transparency and
information
Many MHI beneficiaries still have limited
information on their entitlements and
rights and, while most countries have
consumer protection rules, MHI systems
do not seem to have instilled a culture of
exercising the right to consumer
complaints (as is common in private
systems).
Issues related to conflicts of interest and
consumer protection are of increasing
concern: efforts to simplify and
standardize information for public
dissemination and to widen the range of
performance indicators to include
measures of health care service quality
are, generally, increasing.
The dimension of
Transparency and information
performed relatively poorly.

35. Transparency and
information
This trend appears to be motivated both
by a desire to tighten accountability of
health insurers and to widen the scope of
performance measures.
This requires mandatory health insurers
to have internal information systems for
guiding managerial decisions related to
performance; internal audit units;
external audits; and regular reports to
important stakeholders like legislative
bodies, financial markets, and the public.
To be effective, required reports and
audits are designed to collect
information that is relevant and that can
be acted upon.
In every country, the number
of reports, monitoring
agencies, and indicators has
increased substantially.

36. Dimensions of Governance
Supervision and regulation
These are another dimensions of
governance that can hold insurers
accountable for their
performance.
Such accountability differs from
transparency because it involves
consequences—reward or
sanction—for the performance of
the health insurance funds

37. Supervision and regulation
In all cases, the MHI system involves a
mix of legislative, executive, and
independent agencies, and insurers are
subject to both internal and external
financial audits.
But other features vary considerably:
The Netherlands regulatory authorities
are semi-autonomous entities while the
others are more directly managed by
their respective governments
Private insurers are subject to private
sector regulations (for example, labor
codes, financial reporting)
Public insurers are supervised by
ministries and legislatures.
The dimension of Supervision
and regulation had the widest
dispersion of performance.

38. Supervision and regulation
While conflicts of interest are in all
four cases a matter of concern,
they are being addressed.
Countries that are creating or
reforming MHI should use the
opportunity of reforming the
health insurance system as a way
to introduce measures for
addressing conflicts of interest as
soon as possible
Unifying supervision for all
health insurers—whether
public or private, integrated
with providers or not—is
apparently the best way to
assure fairness and efficiency
in terms of financial solvency,
consumer protection, and
equity.

39. Supervision and regulation Appropriate financial supervision
requires the government to
establish minimum capital
requirements and reserves,
adequate internal controls,
external auditing, and timely
financial reports to regulatory
authorities.
Health insurers are,
fundamentally, financial
institutions and unless they
operate according to sound
financial principles, they
cannot remain solvent or
function well.

40. Supervision and regulation
For health insurance to be effective,
beneficiaries must be able to reach
health care providers in a timely
fashion and receive appropriate
diagnosis and treatment.
Countries need to have mechanisms
in place to directly supervise health
care providers regarding the quality
of services and to verify that health
insurers can fulfill their contractual
obligations by having negotiated
contracts or established payment
mechanisms with an adequate
number of health care providers in
the geographic regions that they
serve
Unlike other financial
institutions, health insurers
sign contracts that commit
them to paying for a service
whose quality is not easily
monitored or guaranteed.

41. Supervision and regulation
Good financial supervision reduces the
chances that an insurer will go bankrupt
when consumers require services.
Good health care quality supervision
increases the likelihood that consumers will
get the services they need when they are
injured or fall ill.
Beyond these, countries have implemented a
number of measures to ensure that:
• consumers have a better understanding of
their insurance coverage and
responsibilities,
• insurers provide good service other than
medical care (for example, timeliness and
accuracy of payments),
• consumers have ways to pursue their
grievances when all else fails.
The preceding elements of
supervision are part of
consumer protection.

42. Dimensions of Governance
Consistency and stability
These help avoid uncertainty
around rule-making and
enforcement through time and
through periods of political
change.
If regulations are consistent,
people and institutions can make
long-term decisions with the
assurance that the rules will not
change or, at least, will not change
arbitrarily.

43. Consistency and stability
Sometimes as a consequence of
political deadlock that resists
change.
Nevertheless, open democratic
processes and debates have
allowed each country to introduce
changes in response to perceived
problems without undermining
the basic credibility of the
system’s structure and rules.
All four countries perform
well with regard to the
dimension of Consistency
and stability.

44. Consistency and stability
When the government has strong
credibility, public decision
structures for health insurers,
written into legislation or even the
Constitution, may be the best way
of establishing a consistent and
stable system.
If the government lacks such
credibility, autonomous
structures, protected by
constitutional provisions or
anchored in the private sector,
may work better.
Establishing an open and
respected process for
changing rules and abiding
by them in the early years of
a new system helps establish
a reputation for consistency
and stability.

45. Consistency and stability
When political debates
demonstrate broad agreement
and support for the health
insurance system, legislation and
regulatory actions can articulate
and implement that consensus.
Even in cases where the system is
the object of fierce political
debates, stability can be achieved
by maintaining the deadlock
(assuming of course that the
current structure is adequate and
important changes are not
needed).
Stability can be achieved in a
variety of circumstances.

46. Consistency and stability
Given that circumstances change
over time, clear procedures for
modifying those rules are also
needed—preferably tailored to
the degree of flexibility required.
Clear rules that are
judiciously and reliably
enforced are the best way
for a country to assure
consistency and stability for
its MHI system.

47. Which forms of governance
encourage the best
performance by mandatory
health insurers?
Lessons drawn from this book cannot be
applied to low-income countries without a
number of qualifications.
First, the cases presented here are only a
small subset of relevant experiences.
Second, the countries discussed here all
established MHI funds when they had much
higher income levels and degrees of
economic formalization than is the case in
today’s low-income countries.
Third, these countries are all economically
and politically stable, with relatively effective
governments, low corruption, and skilled
workforces.

48. The search for better governance
mechanisms has to pay more
attention to how well the proposed
mechanisms “fit” the structure of the
health insurance system and its
context.
• Presence of competition
• Relationships between insurers and
providers
• Organization of civil society
• Effectiveness of political processes
• Enforcement of laws
Which forms of governance
encourage the best
performance by mandatory
health insurers?
While the dimensions of governance
are important to ensuring
accountability, the context of the
MHI system is also a critical factor.

49. Chile and the Netherlands have multiple
insurers, while Costa Rica and Estonia have
just one.
The contrasts demonstrate both advantages
and disadvantages of competition.
The relationship between insurance funds
and health care providers is a critical
conditioning factor for insurers’
performance.
The major contrast in these cases is between
Costa Rica—which has integrated the
insurance and provision functions—and the
other three countries—where insurers are
separate from providers.
Competition is an indirect way of
holding insurance funds
accountable in the sense of
creating incentives and pressures
to perform well.
Which forms of governance
encourage the best
performance by mandatory
health insurers?

50. Countries that are considering
health insurance reforms would
be well advised to consider
whether consolidating insurers
can or should be encouraged.
The advantages of scale,
simplicity, and equity that come
from having fewer insurers are
quite strong
Which forms of governance
encourage the best
performance by mandatory
health insurers?

51. Where countries have a commitment
to competition in health insurance
markets, they have come to realize
that the health insurance market needs
to be structured and regulated if
normal market mechanisms are going
to function well.
The importance of regulation
of health insurance markets
Which forms of governance
encourage the best
performance by mandatory
health insurers?

52. In countries with multiple and competing
insurers, external oversight mechanisms
can pay less attention to efficiency and
management, and focus more on
consumer protection, inclusiveness, and
preserving competition through anti-
trust actions.
By contrast, countries with a single
health insurer need external oversight
mechanisms that make the insurer
accountable for integrity, quality, and
productivity
Role of External Oversight
mechanisms would differ based on
the structure of health insurance
organizations
Which forms of governance
encourage the best
performance by mandatory
health insurers?

53. In some countries, this relationship is openly
antagonistic, while in others, it is more
collaborative.
The presence of providers’ representatives on
the decision-making bodies of health insurers
or regulatory agencies has different
implications under these varied scenarios.
In addition, where providers are direct
employees of insurers, the character of
negotiations and oversight needs to confront
issues that arise in civil service codes or labor
legislation, while countries where providers
are independent of insurers need governance
mechanisms that promote transparent and
productive negotiations over prices and
payment mechanisms.
The relationship between insurers
and providers influences the
impact of different governance
mechanisms.
Which forms of governance
encourage the best
performance by mandatory
health insurers?

54. This is particularly true for choices
regarding stakeholder participation
because even without representation
on supervisory boards, providers may
exert influence in other ways—either
politically or by popular appeals.
Countries that are designing
governance for their MHI systems
need to consider the strength and
form of health care provider
organization and take it into
account.
Which forms of governance
encourage the best
performance by mandatory
health insurers?

55. Using such domestic experiences
and examining the current way
that providers are organized and
relate to insurers may generate
ideas for channeling the legitimate
interests of insurers and providers
in productive directions.
When designing the governance
structures, countries would do well
to examine their own experience
with labor relations in both the
private and public sector, look for
examples that have been more
collaborative than confrontational.
Which forms of governance
encourage the best
performance by mandatory
health insurers?