Risk-Pooling – Necessary but Not Sufficient? Philip Davies1 & Guy Carrin2

Editorial Risk-pooling – necessary but not sufficient? Philip Davies1 & Guy Carrin2 The search for a ‘‘good’’ health system realizing the benefits of risk-pooling in planned programme of mergers, to form is constant. Even in countries where countries without the organizational capa- ever larger risk pools. Such an approach comprehensively organized national health city to operate formal schemes on a national could allow infrastructure and other cap- systems have existed for over a century, level. Risk-pooling, on any scale, has its abilities to develop over time, and may the debate on how best to design them to downside, however. Clients who are eventually lead to the emergence of a single ensure the effective financing, organization insured and therefore do not have to pay regional (or national) risk pool which and provision of care is as lively and the full cost of services may be inclined many would consider to be the ideal. controversial as ever. to over-use those services, while providers In addition, attempts to employ risk- During the last quarter of the may be happy to let them do so because it pooling will fail if they do not have the 20th century many countries proposed a enables them to earn more (moral hazard). confidence of the people they seek to serve. wide variety of sweeping reforms, some In addition, those who are more likely to Any pooling scheme will be judged by its of which were adopted and refined, and require care have a stronger incentive to join results, and if problems of access or others rejected. That period can be viewed a voluntary risk-pooling scheme (adverse affordability persist people will quickly as one in which a ‘‘natural experiment’’ selection). Such problems could be reduced become cynical. Appropriate arrangements was conducted on a global scale. It has in micro-insurance schemes since their are needed to oversee the scheme so as yielded surprisingly little, however, in the small scale and community focus might to ensure that the benefits of risk-pooling way of real, evidence-based understanding provide informal safeguards against them. are in fact realized. of what works well. Smallness in its turn is a mixed blessing More fundamentally, those who pay Much of current research on health though. As Dror explains in this issue of contributions when they are healthy must policy seeks to discover quantitative rela- the Bulletin (pp. 672–678), the smaller a know that, if and when they need care, the tionships that can explain the achievement scheme is the harder it is for it to remain pooling scheme will still be there to help of health systems in relation to their design solvent. That is a statistical reality which them. The failure of an insurer can be as and the wider context within which they cannot be avoided. He suggests reinsurance catastrophic for those affected as the operate. One such relationship which is as an approach to help micro-insurance collapse of a bank. Countries may thus need already quite well understood concerns schemes overcome the threat of financial to regulate insurers and micro-insurers to the role played by risk-pooling, or insur- failure. Just as households can pool their ensure financial probity in the same way ance (1). There is a growing consensus that, resources to help reduce fluctuation in their that they regulate the banking industry. The other things being equal, systems in which health spending, so can insurance schemes importance of oversight and regulation the degree of risk-pooling is greater achieve themselves. Through reinsurance, schemes for effective risk-pooling should not be more. that have faced fewer demands on their overlooked. Risk-pooling is beneficial because funds than anticipated can indirectly Similarly, other initiatives to improve health care costs are generally unpredictable subsidize those that have faced more. health system performance — whether and sometimes high. People cannot reliably The potential benefits of reinsurance by increasing the efficiency of service forecast when they will fall ill and need in countries where micro-insurers operate providers, building up human resources to make use of health services. When it are clear. Unfortunately, however, reinsur- or enhancing access to traditional healing happens, the costs of those services can be ance also faces the twin difficulties of moral — will struggle where government is weak significant. Risk-pooling increases the like- hazard and adverse selection. Micro-insur- in its role as protector of the public’s lihood that those who need health care ance schemes that reinsure may have interests. Success in that role, defined by the will be able to obtain it in an affordable and weaker incentives to contain the costs of World Health Report 2000 — health systems: timely manner. It allows resources to be the benefits they pay out; and schemes that improving performance as stewardship, is un- transferred from the healthy to the sick. are more likely to face budget blow-outs in doubtedly a key factor in determining levels From the viewpoint of individuals and any given period are more likely to choose of health system achievement. In contrast households, contributions during times to reinsure. to the concept of pooling risk, however, of good health can be used to meet health Reinsurance is attractive because it little evidence currently exists as to what care costs in the event of illness. In many expands the size of the risk pool, and allows constitutes effective stewardship, how to cases, pooling also contributes towards greater scope for costs to be shared. In bring it about and the mechanisms by which redistributive goals by making those with some circumstances, however, it may be it has an impact on achievement. Therein higher incomes contribute more in order preferable simply to establish schemes with lies another key challenge in understanding to subsidize the poor. larger risk pools from the outset. Examples the complex relationships that link policy Community-based health insurance or already exist of district-based health insur- and performance. n ‘‘micro-insurance’’(2) is one approach to ance (3), targeting tens of thousands of people rather than a small community. Such 1. The World Health Report 2000 — health 1 Health Economist, Department of Health Financing systems: improving performance, Geneva, World and Stewardship, World Health Organization, 1211 larger schemes can also benefit from Health Organization, 2000, 93–115. Geneva 27, Switzerland (email: [email protected]). economies of scale in administration 2. Dror D, Jacquier C. Micro-insurance: extending health insurance to the excluded. International 2 Senior Health Economist, Department of Health and transaction costs. Alternatively it may be feasible to Social Security Review, 1999, 52: 71–97. Financing and Stewardship, World Health Organiza- 3. Criel B. District-based health insurance in sub- tion, Geneva, Switzerland (email: [email protected]). encourage progressive scaling up of micro- Saharan Africa. Studies in Health Services Ref. No. 01-1388 insurance schemes, possibly through a Organisation and Policy, 1998, 9. Bulletin of the World Health Organization, 2001, 79 (7) # World Health Organization 2001 587.

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