Should implementers charge for healthcare services in lower- and middle-income countries (LMICs)? Development economists have been tackling this question for close to two decades and are still struggling to reach a consensus. Michael Kremer, a non-resident fellow at the think tank, Center for Global Development, gave his take on this complicated question in a seminar on the results of his most recent research, Improving Health in Developing Countries: Lessons in RCTs (co-authored by Rachel Glenerster).
According to Dr. Kremer, there are two schools of thought that largely frame the debate surrounding the question of charging for health. On one side there are those who believe that organizations should not charge individuals who are already struggling to make ends meet for healthcare. Many in this camp base their argument on the stance that healthcare is a human right. On the other side there are those who believe that organizations should charge people as a matter of principle, since the poor already spend some amount of their income on healthcare. They also support this belief through the claim that having some level of revenue goes a long way in increasing the sustainability of a program, and that charging will make individuals feel more invested in their most important commodity – their own health.
As Dr. Kremer articulated in his seminar however, the answer to this question is not that simple. Research over the last decade has shown that demand for healthcare is very elastic in LMICs, with small increases in prices greatly reducing the rate of participation. Therefore, according to Kremer, charging poor populations for care reduces patient volumes so significantly that very little revenue is raised, leaving the issue of long-term sustainability unaddressed. However, without charging, most organizations do not have the resources to sustainably provide care (without reliance on long-term donor aid).
What then can be done to reach the greatest amount of people, while still making one’s program as sustainable as possible? Kremer advocates for a nuanced view: He argues that free care should be provided only for the poorest of the poor and specifically for cost-effective solutions that have additional long-term benefits (known as externalities in economics). For example, a study by Kremer on de-worming school children in Kenya found that the children not only received the immediate benefits of the service, but also had lower rates of absenteeism from school; in fact, even their peers who didn’t receive the service had lower absenteeism rates! This is especially noteworthy because this intervention cost only US$3.50 per child, while subsidizing children’s school uniforms, which achieved similar drops in absenteeism, cost over US$100 per child. When taking into account these large returns, providing these services for free is still beneficial and cost-effective for society as a whole. Conversely, according to Kremer, those organizations that charge (whether for-profit or non-profit but aiming for long-term sustainability) should focus their efforts on those a step above the bottom of the pyramid who are better able to pay and whose participation in the health market may not produce as significant externalities.
Similar to the questions surrounding paying for health care, health economists have also been exploring the effects of additional payments to providers on their absenteeism rates and the quality of care provided. Provider absenteeism and quality is a huge problem in the developing world with very few solutions identified on how to fix it. Public healthcare providers often have weak incentives to provide quality care (e.g. low income, corruption), while private providers can have misdirected incentives (e.g. weak regulation, lack of qualification). Kremer indicated that schemes that attempt to use additional financial incentives (beyond regular pay) to solve this problem are inefficient as employees frequently cheat the system (e.g. by breaking clocks or having other employees lie for them), not to mention that these schemes are often not financially viable. As a result, Kremer advocates for solutions such as simple community monitoring systems. Getting the community involved in tracking when doctors and nurses show up allows for less corruption (click here to see a video highlighting one such scheme in India) and is a low-cost alternative to many of the other systems that have been developed in the past.
Therefore, Kremer’s ultimate message is that to efficiently deliver healthcare in LMICs, one must work smarter, not harder. Tackling health issues in LMICs in the future should take more nuanced approaches with more programs focusing on working toward their comparative advantage: Free aid should be targeted at the poorest populations and health areas with large returns, with sustainable organizations that charge for care filling in remaining gaps. This would go a long way in using the limited supply of international aid more efficiently.