Insurance

Achieving universal access to health care with financial risk protection at the
least cost possible.
Background
The Ministry of Health within the government wide public sector reform program is
considering the introduction of health insurance as one way of improving the delivery of
health services in the country.
FINDINGS FROM LITERATURE REVIEW
OBJECTIVES
In most countries the overriding objective of the public health system is to achieve universal
coverage (UHC) in health care. With health care insurance function, achieving universal
coverage is broadened to include physical and financial access to necessary health care of good
quality for all persons in society

Conceptual Models
There are four Traditional Models: Beveridge, Bismarck, Social Health and Out-of-pocket
model. This typology, based on source and modes of raising revenues, seems inadequate for
addressing health insurance in Africa due to high levels of poverty, low levels of formal
sector employment and a predominance of rural population. An emerging African health
insurance model combines three elements: Pay-roll based mandatory social health insurance
for formal sector workers; voluntary private insurance; and community based insurance
Analytical Framework
The health insurance function is broken down into distinct functions within the health care
system. Revenue collection refers to the process of mobilizing resources, while pooling refers to
the spreading of financial risk across the population or a subgroup of the population through
the accumulation of prepaid health care revenues and purchasing is the process of obtaining
services from providers on behalf of the covered population.

Revenue collection: Health care is typically financed from a mixture of four sources
taxes, social insurance, voluntary private insurance and user fees or out of pocket
payments. Although general taxation is associated with strong public expenditure control
and administrative efficiency, a number of countries in the world have moved towards
social health insurance. In general, for countries seeking to initiate or expand contribution
for health care through compulsory insurance contributions, macroeconomic and labour
market conditions are critical contextual factors.

Pooling: In some countries, health insurance is part of broader social security and
revenues are collected as part of the national social security, while in others they are
collected by national revenue authorities and remitted to the Ministry of Finance.

Revenue Allocation: Different allocation mechanism exist in the literature including

Government allocation where revenues are distributed based on historical patterns
related to utilization/infrastructure, need-based weighting capitation formula or
subsidies for premium payment for participation or otherwise uninsured. Most countries

Insurance
Achieving universal access to health care with financial risk protection at the
least cost possible.
with NHI seem to rely on the government revenues allocation methodology where public
funds are distributed according to defined population based on need and past utilisation.

Purchasing-Provider: There are two main models of purchasing-provider payment divide:

integrated models (under which the providers are owned and managed by the purchaser)
and contract models (under which the providers are separate from the purchasers). The
emerging trend in many countries has been movement from integrated model towards
the new form of purchasing.

Benefits Package: For most countries, the definition of the benefit package derives from
the World Development Report (1993) which promoted the idea that countries should
define, publicly fund, and ensure delivery of an essential package of clinical health services
based on an analysis of the relative cost-effectiveness of intervention.

Benefits Entitlement: In some countries entitlement is on the basis of residency while in

others it on the basis of membership in national health or social insurance. In general,
health care systems funded from general tax revenues tend to offer benefits to the entire
population (citizenship entitles people to benefits). In contrast, in social health insurance
systems contributions by or on behalf of individuals or families to an insurance fund
determine entitlement to benefits.

MALAWI SITUATIONAL ANALYSIS

Health financing: Government per capita spending on health averaging US$7.6 per capita per
annum, is below regional peers and comparators, and inadequate to deliver Malawis
Essential Health Care Package (EHP) free of charge estimated at US$44.4 per capita and is
significantly below the SADC average of US$141per capita.
Sources of finance: Malawi is increasingly becoming donor dependent, with donor funding
accounting for about 65.4% of total health-care funding and government accounting for just
20.5 percent, way below the Abuja target of 15 percent. Although the country has free health
care, household ironically pay heavily (over 10 percent of THE) while companies pay less
than 4 percent of THE.
Health insurance: There is no national health insurance of any form, a few big companies are
self insured and there is limited private sector insurance schemes dominated by the Medical
Aid Society of Malawi, covering mostly formal sector employees in parastatals and industrial
companies, via payroll deduction and company contribution. Low income and informal
sector workers and the general population have to rely on public health service, pay out of
pocket or just not get formal health care at all.
Out-of-pocket payment: Generally, there are no user fees in public hospital and for those
accessing CHAM facilities, service level agreements have assured no formal fees for accessing
maternal and child health services. There is evidence of some informal user fees spurred by
inequitable geographical service coverage, poor transport infrastructure, poor availability and
quality of services in the public sector which forces people to shun the public sector for the

Insurance
Achieving universal access to health care with financial risk protection at the
least cost possible.
private sector has resulted in increasing out-of-pocket expenditures by certain sections of the
population, especially the poor.
Risk pooling: In principle there is no national health risk pooling in Malawi. Since the
majority of population use public health facilities, effectively the Ministry of Health bears and
pools all the risk. Private schemes cover less than 0.2% of the population and there is no
pooling or cross-subsidy across private schemes and between public and private pools.
Allocation mechanisms: The Ministry of Finance decides how much to allocate to the
Ministry of Health according to Government sectoral priorities. In turn, these resources are
allocated to regional and district levels using a needs- or utilization-based resource allocation
formula.
Benefit package: A minimum service package, called an Essential Health Package has been
defined based on estimated prevailing disease burden and includes most of the common
ailments and interventions to be delivered at each level of the health service. Those under
medical schemes have varied benefit packages depending on the type of coverage and also
have access to a comprehensive range of services, which is primarily limited by the ability-topay user fees.

Feasibility of National Health Insurance Funded From General Taxes

The issue of National Health Insurance for Malawi is not about whether but how. Delivering
an Essential Package for Health free of cost for every Malawian has been costed at US$44.4
per capita. This gives the revenue requirement to deliver the EHP to 15 million people at least
US$667.2 million per annum.

Financing from General Taxation

In the current year, Parliament approved an allocation of MK50.7 billion (US$126.9 million)
for health, representing a per capita allocation of MK3,384 (US$8.05), and an overall shortfall
of US$540.3 million (or US$36 per capita). If Government were to implement an insurance
scheme to deliver the EHP as currently defined and funded from general taxes, it will need to
reallocate resources from other sectors towards health or, identify newer sources of tax and
non-tax revenues to supplement current allocation or, adjust the EHP to include less services
and thereby lowering the cost per capita and overall cost.
a) Reallocation from other sectors
There a number of ways in which the allocation to health can be increased at the expense of
other sectors: an increased by reallocating government expenditures in favour of health or
restructuring sectoral allocations to district assemblies in favour of health.

On the first option, for 2014/15 the total expenditure was estimated at US$1737.33 million
of which US$433 was for development and US$1,274 million is for recurrent budget. In
the recurrent expenditure, when we control for statutory and protected expenditures, the
only room for re-allocation is the K137.7 billion (US$327 million) for ORT. Yet the entire

Insurance
Achieving universal access to health care with financial risk protection at the
least cost possible.

amount falls below the US$540 million shortfall in revenues to require to deliver the EHP.
It is therefore inconceivable that we can have a tax funded EHP based insurance scheme
by re-allocating expenditures.
On the second option, re-directing resources transferred to the local assembly level in
favour of health, unfortunately health (US$7.85 million) and education (US$21.43million)
already account for over half of the transfers to local assemblies (US$55.21 million). Even
if the entire allocation to local assemblies were earmarked for health, at the expense of all
other sectors, it would be inadequate to achieve the EHP.
b) Raising Tax Rates

If Government decided to maintain the benefit package, and current allocation to MoH and
top up the revenue shortfall from additional taxes, it would need to raise an additional
US$540 million, equivalent to 43.7 percent of total revenue and grants, or 52.8 percent of
domestic revenue. If taxes on individuals and companies doubled it would just be adequate
to cover the shortfall but at the expense of disposal incomes and company survival. Dobling
VAT or departmental user fees would not cover the shortfall.

c)

Innovative Finance Earmarked (Health Fund)

We investigate the feasibility of paying for health Insurance with new taxes earmarked for
health. Possible taxes include: tax on airline ticket, levy on airtime, levy on tobacco
(production), and levy on alcohol. In all cases the new taxes cannot pay for the revenue
shortfall however, they can provide important seed money into the Health Fund
d) Redefine the EHP
Instead of guaranteeing an Essential Health Package government could come up with a
cheaper less than comprehensive package that would be offered at no cost at primary care
level. How affordable this will be depends on services that can be retained in the package and
at what level these can be guaranteed

PROPOSAL
1.

Adopt the African mixed model

Phase 1: Private Insurance already exists. Leave it as is for the moment
Phase 2: Introduce Mandatory Social Insurance: starting with civil/public servants and
simultaneously pilot and scale up Community Based Health Insurance model to gauge
appropriate model.
Phase 3: expand and integrate private insurance into National Health Insurance
Phase 4: integrate CBHI into NHI

2.

Create a National Health/Social Security fund

Use pool for risk equalization
Cover indigents
Pool resources through earmarked taxes
Top up the Pool with resources from donors

Insurance
Achieving universal access to health care with financial risk protection at the
least cost possible.

ISSUES FOR DISCUSSION

1.

2.

3.

4.

What is/should be the objective Of Establishing Health Insurance in Malawi?

UHC? Or UHC with financial risk protection? Or revenue generation for health
system or resourcing the system?
Should Malawi rely on General Taxes, Earmarked taxes or mixed models, including the
so-called African model
If the African Model, how do we phase and sequence the components?
If there will be a Health Fund, should it be part, complement or substitute of the
Health insurance fund?
If a Health Fund, how should donor funding for the health sector complement a
national insurance fund, if at all.
If Malawi cannot fund/afford the EHP as currently designed can we redefine it.
Should the benefit package be tied to EHP or some other package e.g. primary
care, or MNCH or catastrophic package?
Should entitlement be based on citizenship / residency or insurance membership and
contribution? How do we secure the system