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Monday, 3 October 2011

USA Health Insurance is a Bad Model for Zambia (Guest Blog)

Sure, if you are rich and can afford to pick and choose from the vast array of expensive private health care providers and insurers, or if you are old and can avail oneself of the limited socialised Medicare system, then you can safely say that USA Healthcare is "the best in the world". Otherwise it is an unmitigated disaster that condemns tens of millions of citizens in the richest country on Earth to suffering and death from preventable or treatable causes. In spite of the vastly lower per patient administrative costs associated with government run Medicare insurance when compared to the private sector insurance system, and the overwhelmingly positive reviews it gets from the senior citizens served by it, political conservatives are utterly opposed to extending the plan to citizens under 65 because of a lack of cost controls. Meanwhile the liberals are complaining that women pay private health insurance premiums that are 115-120% the price paid by men, accurately pointing out that this is also roughly the share consumed for reproductive health (which is justifiably the economic responsibility of both genders equally), while at the same time seeming to ignore the statistics that show that adult American females of reproductive age consume health care services at a rate around 250% the cost of their adult male counterparts[1].

The American delivery system is a hodgepodge of taxable private hospitals, clinics, specialists, and research laboratories, non-taxable versions of the same facilities run by churches, medical schools, and charities, and government versions of the same facilities paid for with tax money. Overlaid on this is another patchwork quilt of insurance coverage for individuals, some for profit, some non-profit, and some government run and subsidised in whole or part by tax dollars. Oh and by the way did I mention that government institutions and insurance programmes include all levels of government, not just the Federal government, but each one of the individual 50 state governments, and each of the hundreds of county governments within those states, and often city governments as well? Well it does.

Apparently the only compromise between the advocates and opponents of extending the socialised insurance system to the whole population (nobody is seriously even contemplating a "government takeover of healthcare" delivery institutions), is to shove the whole problem onto employers. Well I am an employer, and I am not qualified to be making those decisions about the appropriate amount of medical insurance covering my employees. I have 15 employees, ranging in age from early twenties to late sixties, all of whom make over the statutory minimum wage even for my State, which has the highest wage standard of the fifty. About half of them are not covered by any form of health insurance and must pay full cost out of pocket for any care received (myself included). All of them already by law have a percentage of their wage deducted by me and delivered to the Medicare insurance system before they receive the balance of their pay. All of them are already covered for treatment and lost wages due to injuries suffered while on the job, paid to private insurers by me and factored into the price of everything that we sell. If any or all of these numbers need to be increased, be it the minimum wage, government insurance percentage of wages to be withheld, or the required amount of catastrophic coverage related to on-the-job injury, then we know how to make those changes relatively easily without adding much administrative overhead. If the costs become untenable, we will be able to see and show where and why.

Down here at the lower gross sales per employee end of the spectrum, where wages even at or near the minimum constitute 30-40% of gross revenues already due to heavy competition, we face a very different equation than the "small businesses" with millions or tens of millions of dollars in gross income per employee (such as financial planners, lawyers, or surgeons in private practice). High wage employees are used to having health insurance paid by their employer in lieu of higher wages as a tax dodge, and since they also probably have stock options they don't really mind that the company doesn't pay as much for this insurance as they would have in increased wages. This is the only source of "savings" that I can detect from employer issued insurance, and it goes to the shareholders. Effectively lowering wages in order to deliver insurance to employees would be illegal where those costs reduced compensation below minimum standards. The problem is that low wage workers cannot afford the costs of private insurance plans, so lower the costs of the plans, or mandate higher wages, but don't randomly put employers in the middle of that decision, if we aren't already health care experts then it is literally none of our business.

Zambian healthcare, such as there is of it, is almost entirely delivered by government and non-profits at this point in time, making it much simpler to impose a standard insurance framework than in the massively redundant (sorry, "competitive"), American marketplace. When I speak with German or Japanese nationals about health care in their countries, it all sounds very simple for the patients. There is a basic national system, everyone gets enrolled (in Germany 92% use national insurance, 8% purchase private plans or designate sufficient personal savings for health care), and goes to any health care delivery facility that is most convenient and/or appropriate to their immediate and preventative needs. Every visit to a facility incurs a cost based on the services performed, and the portion of that cost payable by the patient is dependent on their status as registered in the system. If they are employed in a high wage industry then they may pay all or almost all of the cost of their treatment (in addition to subsidising the system partially through their contribution to the income tax system). If they are employed in a low wage industry, then the amount payable from their disposable income is partially subsidised through the system (effectively reduced or fully offset by their contribution to the income tax system); and if they are unemployed or disabled or otherwise in need of health care beyond their economic means, or if the preventive nature of the treatment will benefit the society and reduce future health-related expenditures by the system, then all of the cost may be bourne by the system. The facility, whether public or private, is always compensated for the services they deliver in all three examples (with appropriate oversight for waste and/or fraud of course)[2,2a].

Such systems are not without their limits however, and the volume of emergency procedures, or the ratio of subsidised procedures overall may require higher patient contributions to and/or delay of less urgent or optional procedures, thereby placing some hardship on certain patients. It is unlikely however that those patients would have received faster or less expensive treatment under a different insurance system, unless they also have sufficient means to pay more than the average patient for procedures under a single-payer system. There may be a viable market for secondary private insurance to amortize the costs of copayment for those with consistent employment. Certain re-evaluations of health care priorities may be necessary as the overall health of the population increases, so as to avoid the circumstance of the US system, where with an aging population and a disproportionate share of the uninsured amongst the young, an ever increasing share of total health expenditures is being used during the last two months of elderly patient's lives [3].

There is ample evidence that the confidence citizens of countries with national insurance systems have that their needs will be adequately covered correlates with relatively lower reported stress over medical issues being suffered by patients or their relations. This is also true of American seniors on Medicare and high earners with "Cadillac" private insurance plans when compared to their uninsured or underinsured fellow citizens. According to Vermont's Governor, Peter Shumlin, the State is moving to a single payer system as the best means to contain costs [4]. Perhaps the voters of Vermont are just idealistic, but they apparently would rather have a system concentrated on enabling doctors and nurses to focus treating patients with the resources on hand, instead of worrying about which patients can pay for what level of care, or how much more care they could deliver if only their patients were richer. I strongly doubt that doctors and nurses currently working or aspiring to work in Zambia chose to do so in order to become obscenely rich. I think that most of us want such persons to be prosperous and comfortable in their home lives, and nobody on either side wants there to be a lack of trust between patients and health care providers.

There is no profit motive at the heart of health care delivery. Certainly it is a capitalist, market-oriented world that allows for various medical suppliers and innovators to outcompete their fellows through productivity, economy of scale, and alternative methodologies. There is no need for that natural competition on the periphery of the doctor-patient relationship to intrude into actual delivery, and I certainly cannot identify any actual benefit provided by private insurance other than to high wage earners and stockholders who would rather pay a large amount to a private insurer than the same or smaller amount in additional income taxes. The logical presumption is that such persons intend to make use of additional, expensive private health care services without making use of the government insurance system, and therefore want to avoid any contribution to a national plan. For richer Zambians already accustomed to traveling abroad for private care, any contribution to domestic health delivery may seem like an unnecessary additional expense. This is similar to many attitudes of some parents who send their children to expensive private schools in reaction to initiatives to improve universal public education delivery, and equally self-defeating since their own children's prospects are still tied to the national situation as a whole. Children trained in the best of private schools can still benefit a great deal both economically and culturally from life amongst a better educated general population, and will have a much better chance of being accepted as a leader by their fellow citizens if there is no barrier of resentment between them from the start.

One primary insurance plan, with simple earnings based patient co-payment of fee-for-service health delivery at any licensed facility, is a proven way to provide reliable health care universally to citizens at a resource level determined by the average income of the patient base. Only those with no reasonable means of payment are not required to contribute at the point of service, thereby reducing the burden on the general revenue of the government, and providing reassurance to the higher income elements of society that they will not be disproportionately burdened by "freeloaders". Keep in mind that even though two consumers may be asked to pay the same 50,000 kwacha price for a 25 Kg bag of mealie meal in the market, if the first consumer takes home 500,000 kwacha per month then the bag costs 10% of their income, while if the second consumer takes home 5 million kwacha per month then that same bag is only 1% of their income. The first consumer can only cover one-sixth of the JCTR monthly basic needs basket for a family of six, and will need to combine their income with that of other household members in order to afford the full basket, while the second consumer can afford it all and still have nearly half their take home pay left for other things even if no other household members produce earnings [5]. This is known as "relative poverty", and it means that the cost of basic needs like food or healthcare are effectively much higher for poor people than richer people can easily perceive.

I strongly advise against Zambia adopting any portion of the health insurance system used by the USA. A diversified market of delivery facilities is welcome, especially given the general lack of facilities in the nation at present, and a reliable single-payer insurance system can provide the industry with a level playing field and predictable reimbursement rates for services delivered in good faith for the benefit of citizen's health. The wealthiest can and will always seek their own exclusive arrangements individually or collectively, and don't need the whole system to be geared to their expectations. There is no advantage to be gained by involving employers in the process other than for the purpose of ensuring that wages are high enough to allow wage earners to contribute to their own health care, account for liabilities accrued due to workplace injuries and/or hazardous working conditions, or to facilitate tax collection through income withholding from paychecks.


[1] "Gender Differences in Health Care Expenditures, Resource Utilization, and Quality of Care", Dr. Gary M. Owens, MD, Supplement to Journal of Managed Care Pharmacy, April 2008, Vol. 14, No. 3, pp 52-56 (PDF 285 KB), 
[2] "Insights From Health Care in Germany", Christa Attenstetter, PhD, American Journal of Public Health, January 2003, Vol. 93, No. 1, (PDF 136 KB),
[2a] "Health Care Reform In Japan: The Virtues Of Muddling Through", Naoki Ikegami and John Creighton Campbell, Health Affairs, 1999, Vol. 18, No. 3 pp. 56-75, (PDF 328 KB),
[3]Sixty Minutes, (CBS), "The Cost of Dying: End-of-Life Care",
[4]Vermont State Governor Peter Shumlin on The Rachel Maddow Show,
[5]JCTR Basic Needs Basket,


The above post was written by our resident contributor - L Yakima.

Zambian Economist encourages guest contributions from leading thinkers on matters relevant to Zambia's national development. The purpose of these notes is to stimulate discussion and ensure logic and impartial critique plays a leading role in shaping public debate. You can read more special contributions here. If you wish to write a special contribution please email :


  1. All the problems listed stem from the fact that US health insurance has been privatised, and is now 'for profit', creating persverse incentives in health insurance. In short, the companies receive premiums up front, and then spent much of their time trying to give as little of it back as they can.

    The privatisation of health insurance in the US has proven again that some things simply cannot be done on a for profit basis, and need the state to do it.

  2. MrK i disagree with you that health service should never be run for profit. in fact if you want health care to be sustainable you need to run it in such a way that it care pay for it survival. that means not running it on loss.
    i remember in the easy days of MMD they introduced a fund of which everyone employed or not had to pay K500 per household. nobody refused until the Government fail to make good of their promise.people know that their is nothing free.if the private administrator was given an opportunity to administer those fund it could be in existence now.
    for me the only thing the US health care system has shown is that their is need for more regulation and not the state owning it.

  3. Employers in a way have to contribute to health care of their employees. it not a matter of knowing what type of care one’s employees are want. it’s about what the employee is earning and fitting them in a category of products available on the market. If the employer disagree then let him factor in the cost of health insurance in the salaries. The end is the same. At the end of the day its responsibility of individuals to get the health care they can afford. Government should not allow people to access care they cannot afford so that they (government) cover up the extra cost. This is may be unaffordable in the long run. Responsibility must be placed on the individuals and Government, as a way of protecting people, should just prescribe the minimum accepted benefits for every individual. If a private insurer comes up and want to serve the “rich” then why not?
    I wish to highlight that a single health scheme run by the state also has huge disadvantages. Frankly ist not easy to come up with a system which will make everyone happy. So i would rather go to the one which is more sustainable. For the state to run the socialised health scheme they would need to up their revenues. So high taxes for someone, either the business community which is not big enough in Zambia or the employed who are equally few. So we may have about a million employed paying the countries health care. Not to mention the foreign nationals that live in our country. This is too much a burn for the few taxed. And where is justice/fairness in this anyway? Secondly, state run health insurance, like in many countries, is infested will incompetency, inefficiency and great wastage. All these factors continue to fuel rising costs of care. We’ll not be able to access the funding in time. It will take time to finance say a BP machine that is needed or an evacuation of a patient to a place of caret. Also likely to suffer will be the care provider, who will never be paid on time. This will greatly prevent the growth of health care in general.
    The benefits of the private insurers in an environment where the state runs an insurance scheme are that their premiums are likely to come down. Private insurers will most likely pay providers better and timely. They will respond to the changing environment easily. This means we may see I huge growth of the laboratory system, radiology services, state of art hospitals and rarely skilled doctors. They are also likely to be more efficient and less wasteful. But admittedly, they need to be well regulated because of their tendency to concentrate on profits than care.
    We need to develop a system that ensures that doctors, the people with the skills to provide the service, have more say in how these medical aid/Insurance are run and on the pricing the cost of services. We need to go to the original objectives of medical insurance which was to create a non profit making fund that is used for medical care only. Funds owned by the people paying the premiums and only hiring administrators to run them. This will eliminate the third party in the patient –doctor relationship.

  4. MrK & Aaron,

    I think that I agree with both of you, at least in part. What is interesting to me about the German and Japanese models is that they are "defined benefit" systems which use some positive incentives in order to keep costs down, as well as removing the medical practitioner from the dilemma of prescribing different treatment protocols based on the socioeconomic status of their patients.

    I agree with MrK that application of private insurance industry models to health cost coverage produces incentives to deny care, underpay medical service providers and/or overcharge consumers. Without a counterbalancing financial incentive to actually deliver improved overall health outcomes this sort of behaviour is likely to persist. However, there is nothing to prevent medical service providers from seeking to profit through efficiencies or provision of additional amenities to customers of means who would have the highest co-payment share of the standard costs of treatment. The higher income segment would also perhaps benefit from the existence of a private secondary insurance market, which could certainly compete to offer either plans to effectively prepay the patient share of fee-for-service compensation to medical service providers, or to augment the standard medical care with additional higher cost options at certain facilities (such as private rooms, additional staff, etc.).

    I agree with Aaron that health care delivery which does not include some form of fee-for-service co-payment of costs by patients presents an equally perverse incentive to the delivery and insurance system. At the end of the day the books of the insurer, whether private or public, must balance. There is no reason to prohibit private medical service providers who abide by the standard Hippocratic credo to treat the patient in front of them no matter who they are. One can only reasonably expect them to be able to do so sustainably if they have a reasonable expectation of reciprocal compensation to cover their costs and attract highly skilled labour. By implementing a nationwide fee-for-service plan hospitals and clinics will know in advance exactly how much money they can budget for delivery of a given procedure. Where I think that we perhaps depart company somewhat is over how much of that fee should be subsidised through the progressive income tax system for low income patients. Flat fees will lead to poor health outcomes for many patients who delay seeking care due to inability to pay, while proportionate fees will still discourage overuse of subsidised care without bankrupting marginal households.

    Even the Bush Administration realised that for the elderly poor on government Medicare insurance and Social Security which covered only a small portion of the rapidly rising cost of prescription drugs, budget choices such as "food or pills?" were becoming increasingly common and needed to be addressed. Unfortunately they failed to properly means test the additional benefit, to allow for single-payer collective bargaining with drug companies and reduce costs to approximate Canadian standards, or to arrange for cost containment/revenue instruments resulting in runaway government spending and a bloated drug industry. You are correct, the State doesn't need to own the medical delivery system itself, but it does need to step into the role of providing a consistent and predictable cost structure for all parties. This will be much easier to achieve in the context of Zambia going forward than it ever would be in the huge and entrenched US system.

  5. Aaron,

    MrK i disagree with you that health service should never be run for profit. in fact if you want health care to be sustainable you need to run it in such a way that it care pay for it survival.

    A lot of people confuse healthcare with health insurance. I did specifically refer to health insurance. How hospitals are run and who employs doctors and nurses is of no great concern to me, as long as they are professional.

    However, in order to supply universal care, everyone has to be covered, and that means a national health insurance. And it is specifically health insurance that cannot efficiently be done on a for profit basis.

    There are books out about how for profit health insurance companies make profit through mininmizing costs, by denying patients and their doctors payment for specific or all healthcare costs.

  6. MrK you are right that profit health insurance rob patients to make profit. but that alone does not mean we should not have private profit health insurance.i think we need to seriously regulate them an outlaw them. these institutions are would be good for our economy looking at the bigger picture. its also possible to have non profit medical aids that are owned by the people contributing the moneys. these don't have to be owned by gov. these funds can be owned by people and administered by private persons not government.

  7. ZC what happened to the post i made in response to the main article under discussion. i have posted the second one after the first disappeared

  8. Aaron,

    Its there!
    Sometimes the system holds it in suspension! Not sure why!

  9. Yes, it often holds up my comments, sometimes for days, usually when they are long or contain links. Makes me wonder if it isn't due to some internal algorithm at blogspot that is hunting for spammers and/or virus-laden links. It does however hamper the sort of digital back and forth we all became accustomed to in years past. While there is a part of me that would love to address each and every comment listed on sites more oriented towards news than analysis, and would be willing to handle the spillover here, the reasonable part of me knows that I like everyone else will burn out eventually, and the resulting flood of sheer negative issue or party based campaigning could kill thoughtful commentary here for months. I can put up with delay of publication of my more detailed commentaries only because I believe them to be non-time dependent. It does make it hard to maintain a conversational style of debate between differing viewpoints, which is unfortunate, and the blogosphere in general lacks a good solution to the dichotomy between freedom of commentary and non-abuse of speakers.

    It stretches my patience as well, however if there is one thing that Cho has taught me over the years it is to compare to the contra-positive as well as the ideal, and I am not convinced that things would be better in the comment strings without the blogspot delays even if we could return to the old method when the population was smaller and the various party cadres not targeting us for perceived hostility to their respective causes and candidates.

  10. Some recent anecdotal accounts of typical rural healthcare experiences from Chiawa:

    I was particularly struck by the comments Chimanga Village Headwoman Mary Sakala in light of both the importance of fees for service to maintain budgets, and the willingness but limited ability of poorer patients to pay fees. "They may have scrapped user fees, but it makes no difference: they didn't have medicine before and they don't have it now. The only change is that now you don't pay to go to the clinic, and only then find out they have no medicine to give you. As an elderly woman it was difficult for me to pay that fee. At least now I can use that money to buy food like rape [a green leafy vegetable] and tomatoes. When they don't have the medicine we need then we have to go to town and buy them from the pharmacy. If you have to go to town you have to hire someone to take you and it is very expensive. Last year I had to pay K15 000 for malaria tablets and also because I was having problems with my legs. There are 11 people in my household, including my grandchildren. A bucket of maize costs K25 000, so if I spend K15 000 on medicine then we don't have money for food."

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