Prepayment and health insurance

Prepayment and pooling are essential to achieving universal coverage and social health protection.

Private and community-based insurance schemes usually have low population coverage and small risk pools, and are often not sustainable without significant subsidies from government. Social health insurance can play an important role in population coverage where there is a large formally-employed population, but the informal sector dominates in many low-and-middle-income countries. Even in large social health insurance schemes, tax-based funding is necessary to subsidise the scheme, cover the informal sector and protect the poor.

The alternative to prepayment is, of course, out-of-pocket payment for services, which as we have seen carries a high risk of catastrophic health expenditure. In countries with high rates of out of pocket expenditure for health, people are often reliant on informal borrowing or financing through family and community networks to pay these out of pocket expenses; or they may get a formal loan; or they may sell assets to pay their costs.

Why are these seen as undesirable ways to pay for healthcare, since they allow people to use all the assets they have until a health care expense occurs, rather than tying assets up in insurance premiums?

How might out-of-pocket payments greatly increase inequity?

Please comment below.