Argentina - Health Insurance Reform Project

 ICRR 10474 Report Number : ICRR10474 ICR Review Operations Evaluation Department 1. Project Data : OEDID : OEDID: L4002 Project ID : P040909 Project Name : Health Insurance Reform Project Country : Argentina Sector : Population Health & Nutrition Adjustment L/C Number : L4002 Partners involved : Prepared by : Timothy A. Johnston, OEDST Reviewed by : Hernan Levy Group Manager : Gregory K. Ingram Date Posted : 08/20/1999 2. Project Objectives, Financing, Costs and Components : Objectives : The objectives of this health sector adjustment loan were to support the first phase of a major national health insurance reform by: a) introducing competition into the market for health insurance, without creating undue incentives for risk selection; b ) improving the equity and transparency of the national health insurance Solidarity Redistribution Fund; c) developing an effective regulatory framework and institutions for health insurance; d ) provide financial and technical assistance to qualifying national compulsory health insurance funds (Obras Sociales) to improve efficiency, solvency, and ability to comply with new regulations . Components : The loan resources were disbursed in three tranches in accordance with conditions for tranche release agreed upon with the government . The reform program consisted of three components : a) policy and regulatory reforms; b) restructuring the Obras Sociales; and c) restructuring the national social service fund for retirees (INSSJP) Financing : The World Bank provided total loans of $ 350 million (US$250 million and US $100 million), together with a technical assistance loan of $ 25 million. The project was approved in April 1996, and became effective in July 1996 with the release of the first tranche (Ln. 4002-AR), and closed with the release of the final tranche in December 1998 (Ln. 4003-AR), six months later than originally planned 3. Achievement of Relevant Objectives : The project sought to address the inefficiencies and growing debt of the Obras Sociales , which provide compulsory insurance coverage to half the national population, as well as growing debt and inefficiencies with the INSSJP . About 360 national Obras existed in 1994, most affiliated with various trade unions . Half of these had less than 10,000 beneficiaries, and therefore low viability as insurers . The total debt in 1995 of the Obras and INSSJP exceeded $2 billion. To avoid excessive complexity and political opposition, the project chose not to include Provincial Obras, introduce direct competition between the Obras and private insurance companies, or address the problems of the uninsured (the latter is the target of a pilot project under preparation ). The project represented the first stage in a longer -term reform effort. As such, it achieved most of its specific objectives. The conditions for tranche release were thoroughly negotiated and agreed upon by the Bank and government, and the Borrower fulfilled nearly all the conditions . The restructuring of the INSSJP was not fully implemented, however, pending approval of a more radical restructuring plan that was proposed after project design . The restructuring of the national Obrashas shown promising results but was still ongoing at the time the project close, so it is too early to judge the final outcome (funds will still be available in the local restructuring account until 2001). Some of the implicit or longer-term goals of the reform are yet to be achieved . Although the project contributed to reductions in the operating deficits of the INSSJP and of theObras receiving restructuring support, the deficits have not been eliminated . The introduction of competition has not brought all the anticipated benefits : consolidation of the smaller Obras has been less than anticipated, and low -income groups have been less likely to change insurers (the second stage of reform plans develop instruments to further facilitate consolidation ). 4. Significant Achievements : The Bank and government responded flexibly in implementing a complex and highly political reform . The Bank and government undertook a major sector study in 1995 to assess the health insurance system and make recommendations for reform. This established a common analytical basis for project design and conditions for tranche release. The reforms were supported at the highest political level, and engaged relevant stakeholders inside and outside of government. Specifically, the reforms: Introduced competition among Obras; by 1999, 7 percent of enrollees had elected to change insurers; 31 national Obras qualified for restructuring loans, representing 62 percent of the population; 20 had executed at least one tranche by project evaluation, and showed improved financial indicators, internal efficiency, and strengthened systems to comply with new standards and regulations; Designed and mandated a standard benefits package for all Obras as well as for private insurance; Introduced an automatic redistribution mechanism from the Solidarity fund to the Obras, reducing the scope for discretionary transfers; established an enrollment database of the population ensured by the national Obras Sociales ; created a unified regulatory agency and issued Prudential and consumer protection regulations; submitted to the Argentine Congress a new draft law to regulate private pre -paid health insurance agencies . 5. Significant Shortcomings : Despite significant accomplishment in a short time period, some of project's specific objectives have not yet been completed. The INSSPJ continues to run a substantial deficit, and if the more radical reforms proposed are not approved, the restructuring process will have to be revisited . The government has drafted a new law to regulate private pre-paid insurance agencies, but approval by Congress is still pending . The information database developed was of uneven quality, and will need to be revised . Finally, although the ICR says the reforms introduced by the project are "irreversible," the overall reform process remain contentious and dependent on continued high -level political support. This is not so much a shortcoming of the project, but a consequence of the inevitable difficulties and multiple stakeholders involved in implementing major health insurance reforms . The long-term goals of improving the quality and financial viability of the insurance system will depend on further progress in the next stage of reforms. 6. Ratings : ICR OED Review Reason for Disagreement /Comments Outcome : Satisfactory Satisfactory Institutional Dev .: Substantial Substantial Sustainability : Likely Likely Bank Performance : Highly Satisfactory Highly Satisfactory The Bank response was timely, well designed, and well supervised . Borrower Perf .: Highly Satisfactory Satisfactory The ICR notes the high level of commitment, expertise, and political savvy of the borrower. Commitment appears to have been uneven, however, on some key reforms. Quality of ICR : Satisfactory 7. Lessons of Broad Applicability : The project provides a number of important lessons both for health insurance reform in middle income countries, and health adjustment lending: In designing adjustment loans, the focus should be on negotiating conditions based on desired outcomes of reform rather than specific restructuring measures, in order to allow flexibility in planning and implementation . It is clear that in major social sector reforms, conditions cannot simply be imposed by the Bank . Thorough analytic work prior to project preparation was essential to establish clear and achievable program goals, The parallel technical assistance loan played a critical role in helping the Obras to restructure in response to the reforms; Monitoring and impact evaluation are critical to assess whether the objectives were being achieved, and to make appropriate adjustments if necessary -- the project appropriately emphasized developing local capacity in data collection; Major reforms must be built on broad- multi-agency support, not just narrow sectoral backing, require high level political support to ensure implementation and avoid political backsliding; In any complex reform, the "law of unintended consequences " inevitably applies, requiring flexible responses by the Bank and borrower, as well as willingness to engage in appropriate follow on activities; The Bank and government appropriately recognized that the reforms would be a long -term and politically contentious process, and deliberately chose to focus on a few key initial steps, while keeping in mind the long-term reform vision. 8. Audit Recommended? Yes No Why? This project represents one of the first major health insurance and health adjustment loans completed in the sector. An audit could further explore the lessons from this reform, including the implications for future Bank support to health insurance reform and health adjustment lending in general . 9. Comments on Quality of ICR : The ICR is detailed and thorough, and does a commendable job of explaining both a complex health insurance reform and the project's role in it. The underlying political issues are only hinted at, however . This may have been appropriate for an ICR, but given the importance of political economy issues for the success or failure of health reforms, the Bank needs to seek ways to effectively share lessons in political economy without jeopardizing relationships with stakeholders .