Financing Rural Insurance Coverage
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to improve health outcomes with a fixed budget. But what if financial protection is also a goal? That would call for focusing on (effective) interventions with potentially catastrophic financial consequences, whether or not they are cost-effective. And since cost-effective interventions are cheap, the reasoning goes, people should be able and willing to pay for them out of pocket (Filmer, Hammer, and Pritchett 2000). Such interventions might be subsidized for the poor, especially if demand for them is very sensitive to price. That does not necessarily mean inclusion in an insurance service package—a scheme could be designed (such as Medical Assistance) to help the poor with the costs of these interventions. Yet limiting insurance coverage to hospital care carries the risk that people may delay seeking medical attention until their condition becomes sufficiently serious to require hospitalization, though how often such behavior happens in practice is unclear.50 Focusing on cost-effective interventions and leaving catastrophic interventions uncovered also runs the risk that providers will shift demand from the former to the latter. This is especially likely if providers are paid by salary or budget for covered cost-effective interventions and by fee-for-service for uncovered catastrophic ones. Korea’s experience in this regard is relevant. When introducing universal health insurance (UHI), Korea opted for narrow but deep cover—a very limited benefit package of services but very limited copayments on those that were included (Kwon 2003a and 2003b; Kwon and Reich 2005). Even some quite common but expensive high-technology services fall outside the country’s UHI benefit package. The prices and delivery of uncovered services are largely unregulated, and unsurprisingly the evidence suggests that providers have responded by generating demand for them. Almost 50 percent of total health spending in Korea is still paid out of pocket, despite universal coverage. Nearly half of those out-of-pocket expenses are for uncovered services. For inpatient care, the figure is 60 percent. Not surprisingly, the incidence of catastrophic care spending in Korea is (after Vietnam and China) one of the highest in East Asia (Van Doorslaer et al. 2007). In sum, the case for including catastrophic coverage in the package rests on two arguments: it is precisely such care that is risky to households from a financial perspective and therefore requires insurance; and leaving it uncovered and unregulated, as previously noted, runs the risk of providers generating demand that runs up exorbitant costs without necessarily improving the quality of health. Should basic cost-effective care therefore be outside the package to conserve resources for catastrophic