The challenge of extending universal coverage to non-poor informal workers in low- and middle-income countries in Asia : impacts and policy options

Overview

While many governments in low- and middle-income countries (LMICs) in Asia have begun to implement social health insurance for the formally employed, many governments and policy-makers face a particular challenge in providing access to health services for non-poor informal workers through some form of prepayment. Only a few LMICs have found the means to cover non-poor informal workers so far. 

Informal workers are defined as those outside formal employment, including those employed informally whether in the formal, informal or household sectors. However, the Policy Brief focuses on the coverage of informal workers who are above the poverty line (non-poor).

Although universal coverage, in principle, means providing financial protection to the whole population, it requires the introduction of some form of prepayment for health service charges, especially in low- and middle-income income countries, where resources are constrained and per capita health expenditures are low. Prepayment mechanisms have been defined as a means of distributing the financial risk associated with different individuals’ healthcare expenditures over time and across populations.

The implementation of prepayment mechanisms for non-poor informal workers in LMICs is a relatively new policy area and faces many challenges. There are concerns on whether compulsory schemes such as social health insurance are effective in covering non-poor informal workers, whether voluntary schemes such as community based health insurance can be used to scale-up coverage of non-poor informal workers, and whether complete subsidization of non-poor informal workers can create perverse incentives for remaining in or moving into informal employment.

Approaches to coverage of non-poor informal workers vary depending on the political, economic or cultural context within each LMIC. In conceptual terms, there are three broad, practical approaches to providing coverage of non-poor informal workers: extend coverage downward from the formal sector; extend coverage upward from schemes subsidizing the poor; or use a combination of prepayment and tax-based subsidies.

To be successful, universalist approaches require either tax-based funding or compulsory membership of contributory funds, or a combination of both. However, care must be taken to maintain and guarantee funding levels for the poor in extending subsidized coverage from the poor upward. An alternative is to design coverage schemes for non-poor informal workers that combine elements of contributory (for example, a discounted premium payment) and non-contributory (that is, tax-funded) approaches. In this case, a significant level of tax-based funding will be needed to underwrite such schemes financially.