Doctor’s disorders

If Kazakhstanis are nearly affluent, why can’t they afford good health?


Kazakhstan recovered from the troubled transition to markets in the 1990s more successfully than any other nation in post-Soviet Central Asia. Since 2000, when it had finally recovered from the Russian ruble crash of 1998, its economy has galloped at a pace that would double the income of the average resident every decade. In Almaty, shopping malls offer Italian boots and plasma televisions with larger-than-life flat screens.

Yet….

I have an acquaintance who cleans floors for a reputable employer in Almaty. A recent accident of hers required knee surgery. The bill was $6,000.

In the West, her predicament would have posed no problem. Health insurance from the government or the employer could easily have covered $6,000 – and kept her out of a wheelchair.

But this is Kazakhstan. The middle-aged woman’s health insurance through her employer did no more than pay 5,000 tenge ($34) for medication. The employer would not lend her money for the operation, although her paycheck could have served as collateral. The government offers no health insurance worthy of the name. So she had to scrounge among family and friends for $6,000 in cash (dollars, pazhalsta).

Her dilemma is not unique. In Kazakhstan, stories are rife of physicians demanding a payment under the table for emergency surgery.


Under the green knife


This may help explain why the country’s rapid economic growth has barely affected the most important indicator of economic development -- life expectancy at birth. By 2009, the average span of life had stalled at 64 years for males and 74 years for females, virtually the same as the expectancies of 64 years and 73 years, respectively, that prevailed in the Soviet 1980s, according to data from the World Bank and the World Health Organization. The short life spans are due in large part to Kazakhstan’s high rate of infant mortality – 29 deaths in every 1,000 live births in 2010, although the rate has been dropping, according to the World Bank. Rates of roughly 5 deaths or fewer per 1,000 births are common in the West.


One reason for these disparities may be the lack of comprehensive health insurance here. A statistical study by John Ayanian and coauthors suggests that, in the United States, the insured are more likely to buy preventive care – such as a normal checkup in the past two years -- and thus to avoid some hospitalization.

You might think that Kazakhstan’s privatization of much of the health sector over the past 15 years would automatically create profitable opportunities for insurers. Governments in Kazakhstan, which in the late 1990s dedicated one-seventh of their budgets to health care, spent only 11% that way in 2007, according to the World Bank. Since the early 2000s, the burden of paying for health care has been shifting to individuals, who provided two of every five dollars spent on health in 2009, according to World Bank data. The need for private insurance, in a country where the typical hospital visit can cost as much as two months’ worth of individual income, would seem clear.

Nevertheless, private insurance for major illnesses is not available to most Kazakhstanis today. The probable reason is that private health insurance plans are subject to an odd market failure. To make a profit, the insurer must set the premium above the expected cost per policyholder of claims. But this premium will drive away policyholders who have lower-than-average costs of claims. While the insurer thus loses healthy policyholders to cheaper plans (such as self-insurance), it retains the sickest of its old policyholders, since they expect their claims to exceed the premiums that they pay. Since the insurer retains only the sickest, its expected cost of claims per policyholder will rise. To cover this cost, the insurer must raise its premiums -- scaring away the few healthy policyholders that it still has. Eventually, this process of "adverse selection" will bankrupt the insurer.

As a result, few private comprehensive health insurance plans around the world make money.  No such plan seems to exist in Kazakhstan. But the government can resolve the problem by uniformly taxing the populace to finance public insurance. This requirement forces healthy Kazakhstanis to subsidize health care for sick Kazakhstanis, thus avoiding adverse selection. Public insurance also spreads health costs over a large pool of insurees, reducing fluctuations in the income of sick families (since such families pay low premiums in exchange for an annual income that remains stable despite sickness).


Is insurance out of style?


In 1996, the government launched exactly this insurance plan, financed by a 3% tax on payroll. It killed the plan two years later, when firms refused to provide the tax revenues at a time when Kazakhstan was suffering a slowdown. Perhaps Astana can afford public health insurance now, since the National Fund of oil tax revenues has a net international reserve of $33 billion, about $2,000 per Kazakhstani, according to data from the National Bank of Kazakhstan.

Public health insurance here would not be out of step with the West. The only industrialized countries that lack public comprehensive health insurance today are the United States and Turkey – and the former has taken steps in the past two years toward such a policy.

Comprehensive health insurance is no panacea. Because insurance rewards the policyholder for detrimental outcomes, it weakens his incentive to avoid them. The buyer of home insurance, which will fully compensate him for damages due to a house fire, no longer has reason not to smoke in bed. The buyer of health insurance covering the costs of lung cancer may now light up a celebratory cigarette. In fact, the incidence of lung cancer is rising in Kazakhstan, where a pack of Western-style cigarettes costs as little as 30 cents. In the West, “sin” taxes have raised the price of a pack in places such as Manhattan to more than $11.

This source of inefficiency notwithstanding, public comprehensive health insurance could shield families from catastrophic reductions in income. And it may provide needed money to health care providers – especially in rural areas, where midwives (feldsheri) must often go without weight scales and even syringes; and, more generally, throughout a country where the average doctor literally has made less money than the average worker.

In 2009, total spending on health care in Kazakhstan comprised 4.5% of gross domestic product, less than half the proportion that prevails in Europe, according to the World Bank and the World Health Organization. Perhaps Kazakhstanis die young largely because they spend too little on the most critical stock of human capital of all – health. The government has the power to correct this deficiency. – Leon Taylor, tayloralmaty@gmail.com


Good reading


David M. Cutler. Equality, efficiency and market fundamentals: The dynamics of international medical care reform. Journal of Economic Literature 40:3. Pages 881-906. September 2002.

Rexford E. Santerre and Stephen P. Neun. Health economics: Theories, insights and industry studies. Fourth edition. Mason, Ohio: Thomson Higher Education. 2007.


References


John Z. Ayanian, Joel S. Weissman, Eric C. Schneider, Jack A. Ginsburg, and Alan M. Zaslavsky. Unmet health needs of uninsured adults in the United States. Journal of the American Medical Association 284: 16. 2061-9. October 25, 2000.

National Bank of Kazakhstan. Data. www.nationalbank.kz

World Bank. World Development Indicators. www.worldbank.org

World Health Organization. World health report. Various years. http://www.who.int/

A version of this article appeared in the Caspian Business Digest in 2007.