Argentina - Health Insurance Technical Assistance Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. P-6852-AR MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN IN AN AMOUNT EQUIVALENT TO US$25 MILLION TO THE ARGENTINE REPUBLIC FOR A HEALTH INSURANCE TECHNICAL ASSISTANCE PROJECT APRIL 2, 1996 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Currency Unit: Argentine Peso (Arg$) Arg$1 = US$1 FISCAL YEAR January 1 to December 31 ABBREVIATIONS AND ACRONYMS AGN - Auditoria General de la Nacion/National Auditor General ANSSAL - Administraci6n Nacional de Seguros de la Salud/National Administration of Health Insurance CAS - Country Assistance Strategy DGI - Direcci6n General Impositiva/Federal tax collection agency EFF - Extended Fund Facility FPP Fondo de Programaciony Politicas/Fund for Programming and Policy FROS - Fondo de Reconversi6n de las Obras Sociaes / Restructuring Fund for the National Health Insurance Funds FSR - Fondo Solidario de Redistribuci6n/Redistribution Fund HMO - Health Maintenance Organization ICB - International Competitive Bidding JMF - International Monetary Fund INSSJP - Instituto Nacional de Servicios Sociales para Jubiladosy Pensionados/National Social Services Institute for Retirees and Pensioners ISAPRES - Instituciones de Salud Previsional/Pre-paid Health Insurance Plans (Chile) MSAS - Ministerio de Saludy Acci6n Social/Ministry of Health and Social Action NCB - National Competitive Bidding Obras Sociales - Semi-public health insurance funds (linked to workers' place of employment) OECD - Organization for Economic Cooperation and Development PAMI - Programa de Atenci6n Medica Integral/Integrated Program of Medical Care PMO ProgramaMedico Obligatorio/Standard Health Benefits Package SOE - Statement of Expenditure UEC - Coordination and Executing Unit  FOR OFFICIAL USE ONLY ARGENTINA HEALTH INSURANCE TECHNICAL ASSISTANCE PROJECT TABLE OF CONTENTS Page No. LOAN AND PROJECT SUNMMARY ................................................ i Country/Sector Background/Justification ................................................ 1 Health Insurance Reform ..................................................... 2 Rationale for Bank Involvement .................................................... 4 Project Objectives .................................................... 4 Project Description .................................................... 5 Project Cost and Financing .................................................... 7 Project Implementation ..................................................... 7 Environmental Aspects ..................................................... 10 Project Benefits ..................................................... 10 Project Risks ..................................................... 11 Recommendation ..................................................... 12 Schedule A: Summary of Project Costs and Financing Plan ........................... 13 Schedule B: Summary of Procurement and Disbursement Arrangements ............ 14 Schedule C: Timetable of Key Processing Events ....................................... 15 Schedule D: Status of Bank Group Operations in Argentina ........................... 16 Annex 1: Project Annex .20 Annex 2: Regulation of the Obras Sociales .33 Annex 3: Health Insurance Policy Reforms .41 Annex 4: Terms of Reference for Insurance Regulation Study .46 Annex 5: Terms of Reference for INSSJP Institutional Development Component .53 Annex 6: Matrix of Project Activities .66 Annex 7: Implementation Schedules .69 This Memorandum of the President is based on work of an appraisal team consisting of Robert Hecht (Mission Leader, LA1HR); Richard H. Hoffman, Jose Moscoso, Cristian Baeza, Brenda Enuton (LAIHR); Pablo Gottret and Anita Artaza (Consultants). KarlaMcEvoy was in charge ofproduction. The Managing Division Chief is Alain Colliou and the Country Director is Gobind T. Nankani. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed wiLbhout World Bank authorization.  I  i ARGENTINA HEALTH INSURANCE TECHNICAL ASSISTANCE PROJECT Loan and Project Summary Borrower Argentine Republic Implementing Agency The Ministry of Health Poverty Not applicable Amount US$25 million equivalent Terms Repayable in 15 years, including five years of grace, at the Bank's standard variable interest rate. Commitment Fee 0.75 percent on undisbursed loan balances, beginning 60 days after signing, less any waiver. Beneficiaries The Obras Sociales', INSSjP2, and the Ministry of Health. Financing Plan See Schedule A Economic Rate of Return Not applicable Project Identification Number AR40909 Social health insurance funds. 2 Instituto Nacional de Seguridad Social para Jubilados y Pensionados, the social health insurance fund for the elderly and pensioners.   MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN OF US$25 MILLION EQUIVALENT TO THE ARGENTINE REPUBLIC FOR A HEALTH INSURANCE TECHNICAL ASSISTANCE PROJECT 1. I submit the following memorandum and recommendation on a proposed loan to the Argentine Republic for the equivalent of US$25 million to help finance a Health Insurance Technical Assistance Project. The loan would be on standard IBRD terms repayable over 15 years, including five years grace, at the Bank's standard variable interest rate. The project will assist the Argentine Government in its reform of health insurance, by providing technical assistance and equipment to design and implement new policies, strengthen regulation and supervision, and improve the organization and management of the health insurance intermediaries. The loan is being submitted simultaneously with a package of two adjustment loans (a Single Currency Loan and a Currency Pool Loan) totaling US$350 million for Health Insurance Reform. 2. Background and Justification. The Argentine health system is made up of a wide range of public, semi-public and private institutions for both the delivery and the financing of health services. On the delivery side, the majority of doctors have either full- time private practice or combine employment in public hospitals with part-time private practice. About 54 percent of Argentina's hospital beds (84,000) are in public institutions, 43 percent (67,200) are in private hospitals and clinics, and the rest belong to the social health insurance funds 3. Argentina spends about 8 percent of its GDP on health, or about US$20 billion in 1995. This is high for an upper-middle income developing country, more closely approximating OECD expenditure patterns. Health expenditures are financed by federal and provincial general revenues (about 22 percent of the total), wage taxes for social insurance (36 percent), private household payments, including out-of-pocket expenditures (23 percent), and premia for private health insurance (19 percent). 4. About 65 percent of the Argentine population, or 21 million persons, have some kind of health insurance coverage. Only three million of these persons have private insurance -- the remainder are covered by the country's social insurance funds, known collectively known as the Obras Sociales. By law, formal sector workers (other than the self-employed) and their dependents are required to receive health insurance through a health insurance fund (Obra Social) linked to their specific industry or profession (e.g., automobile workers, commercial sector employees). These workers are "captive" members of their Obra Social, automatically assigned and without the freedom to choose membership in other health insurance funds.  -2- 5. There are about 310 "national" Obras in operation with nine million beneficiaries, 23 "provincial Obras Sociales (one in each province of Argentina) for employees of the provincial and municipal governments and one very large specialized Obra for the country's four million elderly and disabled and their dependents, known as the Instituto Nacional de Seguridad Socialpara JubiladosyPensionados (INSSJP). The social health insurance system spends about US$7.2 billion a year, including US$3 billion for the national Obras, US$1.2 billion for the provincial Obras, and US$3 billion for the INSSJP. 6. Health Insurance Reform. Increasing operating deficits and rising levels of indebtedness by the national Obras Sociales and INSSJP, growing concerns about the inefficiency of these social insurance institutions and their contribution to the relatively high cost of health care in Argentina, plus increasing public dissatisfaction with the availability and quality of health services are heightening political pressures to carry out large-scale reforms of social health insurance. During 1994-95, the national Obras lost about US$300 million and saw their overall indebtedness grow to more than half a billion dollars, while the INSSJP ran an operating deficit of more than US$400 million and saw its debts to financial institutions and to health care providers top half a billion dollars, too. Preliminary figures suggest that despite some efforts at cost-cutting, the INSSJP had an operating deficit of at least an additional $200 million in 1995. There were widespread reports of Obras employing hundreds of excess staff and signing contracts with private hospitals and clinics at inflated prices. A household survey carried out in early 1995 revealed broad consumer unhappiness with health services financed by the Obras. 7. There is broad support in Argentina for the idea of maintaining social health insurance, but with important changes in the present system. The main strategies of the reform are to: (a) use competition among the Obras Sociales and between the Obras and INS SJP to improve efficiency and quality; (b) organize the allocation of resources from a central compensatory fund to account for differences in household income and health risk; and (c) increase the capacity and accountability of the Obras Sociales and INSSJP through a combination of incentives, regulation, and supervision. 8. Competitive Social Health Insurance. The government is now proposing to give workers a choice of social insurance fund, thus requiring the Obras Sociales to compete with one another for members. It is expected that such competition will improve efficiency and consumer satisfaction. Competition and improve regulation should also lead to a consolidation of the Obras system by eliminating small, uneconomical, and poorly managed funds. It is thought that after several years of competition, the number of Obras will decline from over 300 at present to far fewer, with an average size of perhaps 200,000 members or more. Some mergers are already starting to occur, through the creation of federations of Obras. 9. Income and Risk Compensation. The average revenue per beneficiary varies from as little as US$5 to over US$50 a month. The Fondo Solidario de Redistribuck$n (FSR), which receives over US$400 million a year in earmarked payroll  -3- taxes and other special levies, is supposed to be used to compensate Obras Sociales with lower than average direct revenues and higher than average health risks. In practice, however, FSR resources have been allocated in recent years on the basis of non- transparent criteria (some of which may have been political) and to assist Obras Sociales running financial deficits, without analyzing in detail the cause of such deficits. 10. As part of the reform, it is being proposed that the FSR be allocated automatically on the basis of members' income, starting with the poorest, thereby creating a "floor" level of revenue per beneficiary. This floor level would be related to the cost of the standard package of health benefits package to which all Obras members would be entitled by law.(i.e., the FSR allocation would equal the cost of the standard package minus direct revenues). Recent simulations have shown, for example, that if the FSR had been allocated in this manner in 1994, it would have brought al Obras Sociales up to a floor level of US$18 per beneficiary per month. This is considered adequate to pay for a generous package of health benefits, including hospitalization and treatment for most common infectious and non-communicable diseases, plus comprehensive preventive care. 11. Institutional Development and Regulation. Even though the national Obras Sociales and INSSJP manage nearly 2 percent of Argentina's GDP and 10 percent of the federal expenditures, their institutional capacity is inadequate to manage these substantial resources in an efficient manner. Many managers and other technical personnel do not have the full range of qualifications and skills required. Information systems for managing beneficiaries, personnel, pharmaceuticals, and finances are incompletely developed. Many Obras and INSSJP have excess staff that are costly and unproductive. The proposed reform will therefore involve a major reorganization of the social insurance funds, rationalizing and retraining staff, and installing new information systems. 12. Competition among the Obras and between Obras and INSSJP will provide an important incentive for institutional change. Competition alone wiDl not be sufficient, however. The Government is therefore also committed to improving the regulation and supervision of social insurance. This regulation will have to include enforcement of the standard benefits package and of competition, and monitoring to prevent disenrollment of poorer and sicker beneficiaries. Regulators wiDl also have to enforce minimum financial standards for the Obras, including minimum capital and liquidity margins and annual independent financial audits. 13. The Administracion Nacional del Seguro de Salud (ANSSAL), currently responsible for regulating the national Obras, also needs to have its staffing and management upgraded. Since it was created in 1989, ANSSAL has operated as an institution with close ties to the labor unions that run many of the Obras, rather than as a politically neutral body staffed by technical personnel. As part of the reform, the Government has agreed to review the performance of ANSSAL and to establish a fully independent and professional regulatory agency for social health insurance. Over time, the intention is also to strengthen regulation of the growing private health insurance  -4- companies (pre-pagas) as part of a unified regulatory framework, thus laying the groundwork for the eventual unification of the health insurance system. 14. To help the Obras and INSSJP to compete successfully in the new environment for social insurance and to enable them to comply with the new more stringent regulation, the Government is also proposing to creating a special loan facility with a limited lifetime of three years. This facility (Fondo de Reconversi6n de Obras Socialesy INSSJP), to be financed through a combination of national resources and the monetized value of the package of two World Bank adjustment loans, will be used to make loans to the Obras and INSSWP for debt workouts, personnel changes (voluntary retirement and severance packages), and a range of management improvement activities. 15. Government Reform Strategy. To summarize, the Government's long- term vision of health insurance -- shared by the World Bank -- is one of universal coverage of the population; a standard benefits package with a generous set of preventive and clinical health services available to every Argentine citizen; a number of non- governmental insurance institutions (evolving from today's Obras and pre-pagas) competing for members; public financing (from wage taxes or general revenues) of at least the standard benefits package; and of a single regulatory agency overseeing the entire system. Over the next two years, the Government intends to start moving toward this system through a first-phase health insurance reform program. The program has three main parts: policy reform and regulatory development; restructuring of the Obras, and restructuring of the INS SJP. The proposed World Bank technical assistance loan will finance the first part, while the proposed package of adjustment loans will support the second and third parts of the reform. 16. Rationale for Bank Involvement. The World Bank's assistance strategy for Argentina, as expressed in the latest CAS (discussed at the Board on May 4, 1995) emphasizes helping the Government to restore and maintain a fiscal balance by improving the efficiency of public expenditures and support for investments in human resources, especially education, nutrition, and health. The proposed technical assistance loan and the accompanying adjustment loan for health insurance reform, which aim to eliminate the operating deficits and improve the efficiency of social health insurance, while improving access and quality of health care for 21 million Argentines, are fully supportive of these two strategic objectives. The Bank is already heavily involved in structural reforms in Argentina through its recent loans for provincial adjustment and banking sector adjustment, and in the health sector through projects for matemal and child health and provincial public hospital management. Sector work on health financing carried out in late 1994 and the first half of 1995 provide much of the analytical basis for the Government's health insurance reform program. For all these reasons, the Bank is well-placed to assist the planned changes in social health insurance through the proposed technical assistance and adjustment loans. 17. Project Objectives. Overall, the technical assistance project will provide the Government with the necessary resources to meet the important policy conditionality  -5- attached to the health insurance reform loans and to strengthen the public sector institutions required to design, implement, and monitor the planned reforms of the social insurance system. The objectives of the technical assistance project are to (a) design and put in place a set of key reform policies (competition, standard benefits package, automatic distribution from the FSR, etc.); (b) develop the regulatory framework and institutions for the future system; and (c) formulate and implement organization and management change in the INSSJP and Obras Sociales. 18. Project Description. The proposed project is fully described in Technical Annex 1. The matrix of project activities (Attachment I of Annex 1) provides information on the timing of specific activities, their output and expected impact. The project will consist of six components: (a) Policy Design and Implementation (US$1.0 million, 3 percent of total cost) Under this component, a series of important policies will be designed and enacted through presidential decrees, ministerial resolutions, and institutional changes, in order to drive forward the social health insurance reform and meet key policy conditionality. The standard health benefits package (Programa Medico Obligatorio, PMO), which is being mandated through a ministerial resolution to be issued at the time of loan signing, will be further refined through analysis of relevant international and domestic experiences with benefits packages; determination of cost and financial viability; and the implementation of a new mechanism for financing low frequency, high cost medical procedures (alta complejidad) outside of the package. Enforcement of the PMO will be a central regulatory task. The risk and income compensation fund (FSR) will also be redesigned and improved, especially as the national beneficiaries enrollment data is expanded and brought up to date (see below). Policy advisors will analyze the financial cost of the compensatory system, using the available enrollment data and estimates of the cost of the PMO. Options for regulating the private pre-paid health plans will be analyzed and draft legislation wili be submitted to the Congress for debate and approval. (b) Upgrading of the National Beneficiary Enrollment Information System (padron, US$4.5 million, 15 percent of total cost) Technical assistance will be provided to upgrade the padron currently used by the internal revenue service based on the collection of payroll contributions for health insurance. The Ministry of Health has already started to conduct a review of existing enrollment data bases maintained by ANSSAL, INSSJP, individual Obras, and the Ministry of Economy. To create a unified information system, consultants will design rules and operational requirements for the desired register (procedures for contacting beneficiaries, updating information, software, etc.). Once the technical design is completed and agreed among the relevant Government agencies and insurance funds, project resources will be used to implement the new enrollment data base, including installation of computer equipment, training, and follow-up performance monitoring.  -6- (c) Regulation and Supervision of Social Health Insurance (USS2.4 million, 8 percent of total cost) The new regulatory framework must allow for adequate supervision of: (i) quality of health care provided through the financial intermediation of the Obras and INSSJP; (ii) the financial status of these institutions; and (iii) market conduct after opening the health insurance market to competition. Following these principles, a new regulatory code will be formulated and enacted. Consultants will also carry out a diagnostic study of ANSSAL, evaluating its current performance and related structure, staffing, procedures, and resources. In view of its modified mission and functions as implied by the new regulatory code, the regulatory agency will be revamped to include the appropriate organizational structure, staffing pattern, and information systems. Once the detailed plan for restructuring the regulatory agency is approved, the plan will be implemented, including the recruitment and training of managers and technical staff and the procurement and implementation of information systems. The total estimated cost of the component is US$2.4 million, including US$0.4 million for the diagnostic study and the design of new regulations and of the regulatory agency, and US$2 million for implementation. (d) Preparation of Restructuring Plans (US$10 million, 33 percent of total cost) To encourage the Obras to participate in the loan facility for restructuring (Fondo de Reconversion) and to ensure adequate oversight of the restructuring process, the project will provide technical assistance for the drafting of restructuring plans for eligible Obras Sociales. It is expected that over the life of the project, approximately 100 Obras will submit restructuring plans at an average cost of about US$100,000 per plan. The restructuring plans will follow a standard format covering reorganization and management changes, debt workout, staff rationalization, and spinning off or closing hospitals, clinics, and other medical facilities. The operating rules of the Fondo and the draft formats for restructuring plans are given in Annex C to the President's Report for the Health Insurance Reform Loan. (e) Institutional Strengthening of INSSJP (US$8.5 million, 28 percent of total cost) To achieve about US$350 million in additional yearly savings by 1998, the head of the INSSJP and his staff, assisted by the project coordination unit, will design and introduce a series of significant changes in the Instituto. The component wili finance plans for reorganizing and downsizing the INS SJP, installing new information systems for personnel and budgeting, improving contracting practices, and strengthening the management of pharmaceuticals purchasing and payment. Social communications and consumer relations services will also be expanded. Under the component, INSSJP will plan and implement the outsourcing of two large polyclinics in the city of Rosario and the ambulance service it currently operates in Buenos Aires.  -7- (f) Insurance Reform Coordinaion Unit (USS3.5 million, 13 percent of total cost). The loan will be used to finance the cost of the coordination unit for the entire health insurance reform, covering both the adjustment and technical assistance loan. A total of about 30 persons will be hired to staff the coordination unit, including groups for the policy and regulation, Obras, and INSSJP components and for general finance and administration (see below). 19. Project Cost and Financing. Project costs are shown in Schedule A and are estimated at US$30 million for the technical assistance activities to support the health insurance reform. Costs were calculated on the basis of prevailing prices for consulting services and computer equipment purchased in recent World Bank-financed loans to Argentina. It is expected that the World Bank loan of US$25 million equivalent will finance approximately 83 percent of total costs. The Government would contribute the remaining US$5 million, which will be included in the federal budgets for 1996-98. Related expenditures for all project components incurred up to 12 months prior to loan signing will be eligible for retroactive financing from the loan, up to an amount of US$2.5 million. Retroactive financing will be used to cover the cost of INSSJP institutional development studies which are already under way, the operating expenditures of the project implementation team, and spending for computer software and other materials for the upgrading of the enrollment data base. 20. Project Implementation. In September 1995, the Coordinating Minister issued an administrative decision assigning fiull responsibility for the reform of the Obras Sociales and INSSJP to the Ministry of Health. The administrative decision places the reform in the hands of the Minister of Health and names the Secretary for Health Policy and Regulation as the National Director of the proposed project. A detailed description of the project organization structure, including principal functions of each division and an organizational chart, is provided in Annex F of the President's Report for the Health Insurance Reform Loans (Report No. P685 1-AR). The project will be implemented by a Coordination and Executing Unit (UEC) under the National Director. The UEC will have four sub-units: three with direct responsibility for implementation of the main components of the reform (Policies and Regulation, Obras Sociales, and INSSlP), headed by component Coordinators, and a sub-unit for Finance and Administration, headed by a Manager. Internal control and the legal advisor will be off-line subunits of the UEC. Two of the three component managers have already been appointed. Prior to negotiations, the Government will modify the existing administrative decision to include all four sub-units, and will appoint the remaining Coordinator and the Manager of the administrative unit, with terms of reference and qualifications satisfactory to the Bank. 21. A Program Committee is also being established to review and approve the main activities in the restructuring process. Its responsibilities will be to: (a) approve operating manuals and procedures; (b) approve technical assistance for preparing restructuring plans for the Obras Sociales and INSS1P and for insurance policy reforms; (c) review and approve subloans to the Obras and INSSJP; and (d) monitor the implementation of policy reforms and restructurings. The Committee will have five  -8- members, including the National Director from MSAS, who will chair the Committee. The other four members will be fully qualified technically and will have backgrounds and occupy positions which allow them to render objective and independent judgments on the performance of the Restructuring Fund and of the INS SJP and the Obras undergoing restructuring. 22. Procurement Procurement will involve contracting technical assistance (approximately 67 percent of project costs), and purchasing goods and equipment (30 percent of project costs). The remaining 3 percent of the project costs is allocated to finance some operational costs (not Bank financed). Detailed procurement arrangements are specified in Schedule B. All procurement under the proposed project will be carried out at central level in the Ministry of Health by the UEC (Coordinating and Executing Unit). The Bank has satisfied itself that the UEC has the capacity and knowledge of Bank procedures, as detailed in the January 1995 Bank publication Procurement Guidelines, to contract. It is expected that a procurement official for the project be appointed in the UEC who will draw on the experience of other Bank financed projects under implementation such as the Proyecto Materno Infantil (PROMIN) or the Provincial Health Sector Reform (PRESSAL). 23. Consulting Services will be contracted in accordance with the Guidelines for the Use of Consultants by World Bank Borrowers and by the World Bank as ExecutingAgency (August 1981). A total amount of US$19.9 million is allocated for technical assistance and training, which the Bank will finance 100 percent net of taxes. To carry out the diverse assignments, individual consultants or consulting firms will be hired. It is expected that most of the contracts will be entered into with firms following a formal competitive selection process; individual consultants will be selected from a list of at least three qualified candidates and the aggregate amount for hiring individual consultants shall not exceed US$6 million. Firms will be invited to submit proposals based on a standard invitation package agreed with the Bank including the Bank's standard form of contract and model letter of invitation. 24. Goods to be procured under the loan include computer hardware and software, office equipment and furniture. An allocation of US$8.9 million of the total cost of the project has been made for this category, out of which Bank's financing will reach 100 percent of foreign expenditures and 60 percent of local for an aggregate of US$5.1 million equivalent. Procurement will be carried out in accordance with the Bank's Guidelines for Procurement under IBRD Loans and IDA Credits (January 1995). To the extent possible, contracts for goods will be combined into packages of US$350,000 equivalent or more, above which threshold packages will be awarded based on ICB procedures, using Bank's standard bidding documents. Good packages estimated to cost less than US$350,000 but more than US$100,000 equivalent up to an aggregate amount of US$3.4 million may be contracted on the basis of NCB procedures using model bidding documents acceptable to the Bank. Shopping (international and local) will be used for contracts of less than US$ 100,000, up to an aggregate amount of US$2 million equivalent.  -9- 25. Prior review by the Bank will be exercised for the following procurement documents: - all ICBs for goods and the first NCB contract; - all consulting services contracts with firms estimated at or above US$100,000 equivalent; - all consulting services contracts with individuals estimated at or above US$50,000 equivalent; - all extension of contracts with firms raising the contract value at or above S$100,000 equivalent; - all extension of contracts with individuals raising the contract value at or above US$50,000; - all letter of invitation packages for assignments of a critical nature, irrespective of contract amount, as may be reasonably determined by the Bank. All other contracts may be subject to sampling post-review during supervision missions. It is estimated that under current arrangements the Bank will review ex-ante approximately 45 percent of the contracts, which is satisfactory. 26. Disbursements. The proceeds of the loan would be disbursed over a period of three years. The Project completion date is estimated to be June 30, 1999 and the closing date is estimated to be December 31, 1999. The funds of the loan are expected to be disbursed on the basis of Statements of Expenditure (SOEs) for all expenses, except those covered by contracts requiring prior review by the Bank. SOEs will be certified locally by the Program Committee. Disbursement for contracts requiring prior review will be fully documented. Relevant documentation in support of SOEs will not be submitted to the Bank, but will be retained by the UEC. Detailed disbursement allocations are shown in Schedule B. 27. To finance the goods and services required, the National Government will establish, maintain and operate, under terms and conditions satisfactory to the Bank, a Special Account in US dollars at the Banco de la Naci6n. The Bank will make an initial deposit of US$1.5 million to the Special Account. The fill authorized amount of the Special Account will be US$4 million. The UEC will request the Bank to replenish the Special Account on the basis of standard disbursement procedures. Withdrawals from the Special Account will be supported by sufficiently detailed documentation or SOEs in accordance with Bank disbursement procedures. 28. Audit* Annual audits of the Special Account, managed by the federal Government, will be performed by an independent audit firm, acceptable to the Bank. The Auditorla General de la Naci6n (AGN) will be responsible for reviewing the audit plan, supervising the audit, and reporting. The auditors will: (a) audit the Special Account, SOEs and summary sheets; (b) apply auditing standards and procedures satisfactory to the Bank that conform to generally accepted auditing practices; (c) carry out their auditing work in a timely manner (an annual report would be presented no later than six months  -10- after the end of each calendar year); and (d) render an audit opinion or provide reasons why such an opinion cannot be rendered. 29. Environmental Aspects. Category C. This project will not have adverse environmental impacts. 30. Issues and Actions to be Agreed. At negotiations, assurances were obtained that (a) the Government and the Bank will carry out a mid-term review of the project, according to terms of reference satisfactory to the Bank. The Government will present to the Bank its findings and recommendations by February 28, 1998; and (b) the Government will send to the Bank semi-annual progress reports on all project component activities, based on the project implementation plans and the matrix of key indicators discussed and agreed with the Bank. The only special condition of effectiveness of the technical assistance loan will be that the Government will create the UTEC, appoint the National Director, the three program component coordinators, and the manager for finance and administration. Already, the National Director and the three coordinators have been appointed. 31. Project Benefits. The technical assistance loan will provide critical support to the implementation of the overall health insurance reform, including important changes in the policy framework, the regulatory system, and in the conduct of the health insurance institutions themselves. The beneficiaries of the reform will be the 18 million persons currently covered by the national Obras Sociales and INS SJP. Through the introduction of competition among Obras Sociales and improved regulation of the health insurance system, millions of insured Argentines will obtain better health value for the financial resources expended (through increased efficiency) and higher quality of service, measured both in terms of health outcomes and customer satisfaction. Waste and misuse of funds will be reduced. As a result of the implementation of a basic health benefits package for insured persons and the redirection of FSR resources to Obras Sociales with lowest levels of revenue per beneficiary, the project will substantially improve the equity of the health insurance system. On the basis of revenues currently available, the redirection of the FSR would benefit over three million persons currently enrolled in the Obras Sociales with average monthly revenues currently below US$18 per person. Without the technical assistance loan, it is unlikely that the Government would be able to develop the legal instruments for exercising consumers' choice of Obra or achieve effective regulation of social insurance and private pre-paid health plans. 32. The reform will have important macroeconomic benefits for Argentina. The series of measures to be implemented by INSSJP will help it cut its expenditures by about US$450 million a year by 1998, of which US$300 million or 10 percent of current revenues will be net annual fiscal savings (some social prograns will be transferred to other Government agencies and financed from other parts of the budget). INSSJP will also eliminate its operating deficit, which amounted to a total of more than US$600 million during 1994 and 1995, and will generate a surplus that can be used to reduce its liabilities and build up prudent reserves. Without the technical assistance loan, it is  -11- doubtful that INS SJP would be able to design and implement the necessary cost-savings measures. With technical support from the proposed loan, the national Obras as a group will obtain savings of at least US$150 million a year (five percent of current annual revenues), thus eliminating their combined operating deficits of recent years. This will substantially reduce the fiscal risk to the Government of having to use other sources of general tax revenues or borrowing for a financial bailout of the Obras Sociales and INSSJP1. Improved health outcomes for a large segment of the country's work force covered by health insurance will also result in lower absenteeism and higher labor productivity. 33. Project Risks. The first important risk to the proposed project -- the political risk that the Government will not be able to manage successfully opposition to the proposed reform -- is the same risk facing the entire health insurance reform operation, including the US$350 million adjustment loans. To deal with this risk, the Government has adopted a unified position on the reform, which is endorsed by the President and the Ministers of Economy and Labor and the Chief of the President's Office (the Jefe de Gabinete de Ministros). The Government also has a well-design strategy for dealing with those who could potentially oppose the reforms, including the trade union leaders and the health provider associations. This strategy includes frequent consultation with all stakeholders and a set of special incentives (loans for restructuring the Obras, severance packages for employees, new contract opportunities for medical suppliers and service providers) for joining the reform process early and performing well. To further mitigate the political risks, the Technical Assistance Project will finance a campaign to disseminate information on project actions and their benefits to Obras members and management, prior to and during implementation. 34. The second important risk and the one bearing directly on the Technical Assistance Project is the risk of possible difficulties and possible delays in building up and maintaining the institutional capacity of the Ministry of Health, INSSJP, and the relevant regulatory agencies to carry out the reform. This risk has been addressed by developing a strong core team of Argentine managers, lawyers, and technical specialists at the project design stage. This team is already hired and working on the reform. Many complex technical tasks, such as assisting Obras in preparing restructuring plans, carrying out financial and creditworthiness analysis of individual Obras, and designing the new organizational structure of the INSSJP, are being subcontracted to private firms. The Program Committee, with representatives from the Ministry of Economy and the Jefatura de Gabinete de Ministros, will provide technical oversight to ensure that the UEC, INSSJP, and the Government regulatory body are adequately staffed and budgeted. To reinforce local capacity, the Bank is helping the Argentine team to obtain technical assistance from relevant developing (e.g., Chile) and OECD countries and has planning a program of intensive supervision during the first year of the reform. Even though the Govermnent has no strict legal obligation to cover the Obras losses, there would be strong political pressure for the Government to do so.  -12- 35. Recommendation. I am satisfied that the proposed technical assistance loan would comply with the Articles of Agreement of the Bank and recommend that the Executive Directors approve it. James D. Wolfensohn President Attachments Washington, D.C. April 2, 1996  13 SCHEDULE A ARGENTINA: HEALTH INSURANCE REFORM TECHNICAL ASSISTANCE PROJECT (HITAP) Financing (USS'OOO) | Project Components Bank | Government | Total 1. POLICY DESIGN AND IMPLEMENTATION 1.1 Basic Medcal Package 213 38 250 1.2 Redesign of Certral Distribution Fund (FSR) 340 60 400 1.3 Other Policy Studes 298 53 350 Subtotl 850 150 1,00l 2. DEVELOPMENT OF ENROLLMENT INFORMATION SYSTEM .I Design 425 75 500 .2 Implernentation 3,400 600 4,000 Subtotal 3,825 675 4,500 3. REGULATION OF SOCIAL HEALTH INSURANCE 3.1 Diagnostic and Design Phase 340 60 400 .2 Regulatory Agency Strengthening 1,700 300 2,000 Subtotal 2,040 360 2,40 4. PREPARATION OF RESTRUCTURING PLANS 8,500 1,500 10,000 Subtotal 8,500 1,500 10,000 5. INSTITUTIONAL STRENGTHENING OF INSSJP 5.1 Reorganization 1,360 240 1,600 5.2 Budgeting systems and financial management 765 135 900 5.3 Other information systems 1,785 315 2,100 5.4 Pharmacoeuticals management 510 90 600 5.5 Privatization of Hospitals 1,275 225 1,500 5.6 Miscellaneous 1,360 240 1,600 Subtotal 7,055 1,245 8,30 6. PROJECT COORDINATION UNIT . I Policy and Regulation Unit 340 60 400 .2 Obras Sociales Restructuring Unit 1,020 180 1,200 .3 PAMI Restructuring Unit 1,020 180 1,200 .6 Administrative Unit 680 120 800 Subtotal 3,060 540 3,60 TOTAL 25,032 4,768 29,800 SUMMARY OF FINANCING PLAN (US$'000) Financier Local Foreign Total World Bank 18,920 6,080 25,000 Government 4,800 0 4,800 TOTAL 23,720 6,080 29,800  14 Schedule B ARGENTINA: HEALTH INSURANCE TECHNICAL ASSISTANCE PROJECT PROCUREMENT ARRANGEMENTS (US$ million equivalet) Procurement Method Procurement Element OTHER N.B.F. Total Cost 1. Consultant Servioes and Training 21.9 0.0 21.9 (21.9) (21.9) 2. Goods 6.9 0.0 6.9 (3.1) (3.1) 3. Operating Expenses 1.0 1.0 (0.0) (0.0) TOTAL 28.8 1.0 29.8 . ____________________________________ (25.0) (0.0) (25.0) Disbursements/Withdrawals of the Proceeds of the Loan CATEGORY Loan Allocation Percentage of Expenditures (USS million) to be Financed 1. Consultant Services 21.9 100% of net of taxes and Training 2. Goods 3.1 100% of foreign expenditures and 60% of local expenditures TOTAL 25.0 Estimated Disbursement Schedule (US$million) FY97 FY98 FY99 Annual 8.4 8.5 8.1 Cumulative 8.4 16.9 25.0  15 Schedule C Argentina Health Insurance Technical Assistance Project Timetable of Key Processing Events (a) Time taken to prepare 8 months (b) Prepared by Govaenmet of Argentina (c) First Bank Mission March 1995 (d) Appraisal Mission November 1995 (e) Negotiations February 1996 (f) Planned Date of Board Presentation April 1996 (g) Planned Date of Effectivenes May 1996  16 THE STATUS OF BANK GROUP OPERATIONS IN ARGENTINA Schedule D STATEMENT OF BANK LOANS (as of December 31. 1995) (USS million) Loan Fiscal AMOUNT (less UNOISBURSED Number Year Borrower Purpose cancellations) Fully disbursed loans (44) 5,361.2 0.0 of which SAL/SECALUDebt Reduction loans: 2675 1986 Argentina Agriculture Sector 350.0 2S15 1987 Argentna Trade Policy 496.0 2996 1989 Argentina Trade Policy II 300.0 3291 1991 Argentina Public Enterpnse Reform 300.0 3394 1992 Argentina Public Sector Reform 325.0 3555 1993 Argentina DOSR Support 450.0 3558 1993 Argentina Financial Sector Adjustment 400.0 3556 1993 Argentina Pub Enterprise Ref II 300.0 2641 1986 Argentina Water Supply 40.0 2.0 2854 1987 Argentina Power Distribution 276.0 69.8 2920 1988 Argentina Municipal Development 120.0 2.9 3230 1991 Argentina Provincial Development 200.0 108.5 3231 1991 Argentina Water Supply 100.0 89.1 3292 1991 Argentina PEREL 23.0 0.0 3297 1991 Argentina Agricultural Services 33.5 10.3 3362 1991 Argentna Pub Sectr Reform T.A. 23.0 1.0 3460 1992 Argentira Tax Administration II 20.0 2.S 3520 1993 Argentina Yacyreta II 300.0 8.6 13521 1993 Argenrina Fiood Rehab 170.0 26.9 |3611 1993 Argentina Road Maintenance & Rehab 340.0 217.1 3643 1994 Argentina Maternal & Child Health 100.0 77.6 37C9 1994 Argentna Capital Markets 500.0 500.0 3710 1994 Argentina Capital Markets TA 8.5 7.2 3794 1995 Argentina Secondary Educabon l 190.0 186.0 3836 1995 Argentina Provincial Reform 300.0 200A 3860 1/ 1995 Argentna Municipal Development 11 210.0 210.0 3877 1/ 1995 Argentna Provincial Dev. ll 225.0 225.0 '3878 1995 Argentna Provincial Bank Privatiz. 500.0 166.0 13921 1/ 1996 Argentina HigherEducabon Reform 165.0 165.0 | 3926 1996 Argentina Bank Reform 500.0 333.0 3927 11 1996 Argentina Mining Sector Development 30.0 30.0 3931 2/ 1996 Argentna Provincial Health Sector Dev. 101.4 101.4 39-8 21 1996 Argentina Forestry 16.0 16.0 3957 1996 Argentna Social Protection 152.0 101.4 395832/ 1996 Argentina Public Investment Strengthening 16.0 16.0 I3960 2/ 1996 Argentina Enterprise Export Development 38.5 38.5 13971 2/ 1996 Argentina Secondary Education 115.5 115.5 TOTAL 10,174.6 of .vhich has been repaid 2.641.0 7OTAL NOW OUTSTANDING 7,533.6 jA,MOUNT SOLD 12.8 of :,hich has teen repaid 12.8 TOTAL NOW HELD BY BANK AND IDA 7.520.8 ;T,AL UNDISBURSED 3 028 0 0lsbursing SECAL, SAL or Debt Reduction Loan Not yet effective -. Not yet signed. 19-Jan-96  1 7 ARGENTINA Schedule D Statement of IFC Investments as of Decembor 31,1t99S (in USS Milions) F,;r al Onginal CGnoss rommitnenis Ineld Heid Years IFC IFC by by Secunbzvd Comrnitted Obligor Type of Business Loan Equityo Partkc Totlas !FC Pamuc Loan 1960f95 Actndar S.A. Sleel Pntduct5 27.94 20.73 48 oT 25.00 20.00 1960 a/ Papolera Ric Parana S.A. Pulp and Paper 3.00 -- 3 CO0 198t aV Faoesa S.A- Motor Veh, & Accessories 1 23 - 0.28 ' 50 t9B2 al Pasa SAIC Petrschern,cais 3.05 -- 3 05 t96sn72 a/ Celulosa Argentina Pulp and Paper 8.25 4.25 12 50 1969 a( Ecitonal Csdex S.A- Pnnong and Pubilshing 5.00 1.60 0.40 7 30 1959/7-5 al DalmineSiderca SAIC Iron and Steel 14 75 2.25 '7 CO t197tl73 at Calera AveHaneda SA. Cement 5.50 -- 5 50 1977/8418618B Alpargatas SAIC Textiles and Shoes 62.93 5.ae0 36.50 104 43 31.37 24 es 1977185 al Seyex S.A. Food and Food Processing 2t 00 * 21 Go5 1978181/lB2187 93f94 Juan Manmett; S.A. Cenment 44 00 * 67 50 III 50 S 5a s 37 1978185/87188t9l af Massuh S.A. Pulo and Paper 25.65 4.25 3 00 32 90 1979/82ta7/92 atlIpako S A. Petrochemicals 2t 00 t.15 9 Go 31 15 1979183184 av Alpesca S.A. Food & Food Processing 5 20 t.61 5 81 t 98tl8B a/ Petraquim,ca Cuye S-A. Chem,cals& Petrcchemicals 21.00 4 00 21.09 480O9 t988 al Atanor S.A. Chemicals & Petrechemrca(s 7aCa t 00 a 9ca 1988 RopasavSadicar Cap,lai Markets - 0a5 - 3 CS 035 1986187 al Sadicar Capital MarKeo - 2 00 2 CO 1986 R03-Cattonni General manufaeuning -- - 0C 0C6 1986 at ROB-Elen.anuto Faoo5 & agnbusiness *CI o t988 tsl ROB-301dt Timber. puip S paper - DO * 1988 al RO3-Clave Plast General manufactunng .. 0 30 1988 al R03-Cuyo General manutaclunnq . . o^ 1986 al ROB-Gaveranle Incdusinal services - 5z 198S at ROB.Klauksl Cement 1985 al ROB-Laeelcor Food & agnbusmness - 13-