There are reasons why labour-tax-financed health insurance is difficult for low- and low-middle-income countries. Read the case against this solution in this article.

History of social health insurance and its evolution

Traditional social health insurance emerged in Europe in the late 19th century and relied on payroll taxes from workers for health. This was consistent with the context at the time of industrialisation, building a strong military, and pressure from the labour movement. A second category, extending social health insurance, was created in the 20th century to include populations that cannot make contributions for the insurance but will be subsidised by the government’s general revenues. Another category of health insurance emerged in the 20th century as well: noncontributory health insurance. This category can be very confusing as there are no contributions at all (a key feature of social health insurance) and health services are guaranteed regardless of contributions. The United Kingdom is well known for its national health service (NHS), which predominantly uses general government revenues.

Most countries in Africa inherited health financing systems of general revenues from their colonial masters. With a few exceptions (Gabon, Ghana and Rwanda), many countries in Africa introduced traditional social health insurance that relied solely on labour-taxes and raised little money as a result.

Reasons against labour-tax social health insurance

• Stringent conditions are needed for labour-tax social health insurance to succeed. The conditions are: full employment, registration of jobs, and labour taxes that can significantly fund Universal Health Coverage. However, these conditions are unlikely to materialise in many low- and low-middle-income countries. In Africa, 86 percent of jobs are unregistered and nontaxable.
• The notion of using labour-taxes to redistribute resources from the rich to the poor may not materialise but may even reverse in reality. Many labour-tax social health insurances are subsidised by general government revenues; however, evidence has shown that most times, the wealthy end up benefiting from the general revenues.
• Evidence has shown that labour-taxes do not raise significant revenue for health.

Labour-tax social health insurance and Universal Health Coverage

One of the main drivers for the popularity of labour-tax social health insurance is the pressure to achieve Universal Health Coverage through expansion of services for the poor. However, in countries which were able to expand coverage for the poor, it was through general government revenues. The scope of labour-tax health insurance was limited to achieve this goal. Labour-tax social health insurance could act as a step towards Universal Health Coverage, but it is extremely unlikely given the empirical evidence and conditions in low- and low-middle-income countries.

What is the alternative?

What has moved countries towards Universal Health Coverage are not labour-taxes but general revenue. Some of the features of social health insurance such as strategic purchasing can be integrated into general tax-systems. Raising taxes is not always easy. But with a commitment towards ensuring access to health services for all without financial burden, general revenues provide the broadest tax base, the greatest scope of redistribution, and the best opportunity for merging fragmented health systems.

Author: Doris Osei Afriyie

References

Yazbeck A S, Savedoff W D, Hsiao W C, Kutzin J, Soucat A, Tandon A, Wagstaff A, Chi-Man Yip W. The Case Against Labor-Tax-Financed Social Health Insurance For Low- And Low-Middle-Income Countries. Health Affairs [Internet]. 2020 [cited 1 December 2021]; 39 (5): 892–897. Available from: https://doi.org/10.1377/hlthaff.2019.00874