Short-Term Travel Grants (STG) Program. Research Report

Transcription

1 Short-Term Travel Grants (STG) Program Research Report The following opinions, recommendations, and conclusions of the grantee are his/her own and do not necessarily reflect the views or policies of IREX or the US Department of State. Sarah Wilson Sokhey Ph.D. candidate The Ohio State University STG Moscow, Russia Divergent Market Reforms: The Development of Pension Privatization and Health Insurance in Post- Communist Countries Abstract Basic social services such as healthcare and pensions fundamentally shape the well-being of citizens, particularly those in transitional economies. Why have post-communist countries pursued different policy strategies for market-oriented reforms in pensions and healthcare? To explain this puzzle, I draw on over 50 personal interviews with private actors, bureaucrats, politicians and other experts in Russia. To test my results cross-nationally, I also utilize several unique datasets tracking the adoption and implementation of market-oriented reforms in these sectors across the post-communist countries. I find that the government pursued different strategies depending on the challenges specific to healthcare versus pensions. In pensions, the government s strategy favored the inclusion of private actors in the policymaking process, while in healthcare it did not. The unique expertise of private actors made them useful in reducing the difficulty of pension design, but not the government s uncertainty over complex healthcare models. These findings are useful for both academics and policymakers because they challenge traditional interest group research by explaining how a group s influence depends not only on the characteristics of the group, but on the government s strategy for addressing certain policy challenges.

2 Relevance and Contribution to Field Market-oriented reforms involve three broad groups including the government (politicians and bureaucrats), citizens, and private interests. Although powerful businesses have been argued to be influential enough to stall necessary economic reforms (Hellman 1998), the influence of private actors in shaping social policy has largely been treated as a factor of secondary importance or not mentioned at all. Instead research on the politics of economic reform has centered on the battle between a forward looking government and citizens hesitant to risk shortterm costs (see Przeworski 1991). Additionally, bureaucratic statist stakeholders have been described as a determining force in social policy decisions (Cook 2007; Nelson 2001). However, policy characteristics also alter the political incentives for the government to seek assistance from certain sources. Governments had an incentive to turn to private actors for assistance with reforms in pensions but not healthcare. On the policy level, this research suggests that private interests will not be influential just because they are wealthy, well-organized groups. Rather the influence of powerful groups is contingent on the type of policy challenge being addressed by the government. Accounts of economic reforms often assume that the government knows the right reforms and that the challenge is overcoming political opposition (Rodrik 1996). However, the government may not actually know what type of policy model to follow or, if it does know which model it prefers, it may not know how to accomplish it. Private actors are more likely to be influential when the government is attempting to solve difficult policy challenges as in the case of pension privatization. Research Methodology My study uses a two-level approach. First, I use an in-depth case study of market-oriented reforms in healthcare and pensions in the Russian Federation to understand the causal mechanisms driving policy changes. Second, I test the findings of the case studies using original datasets that include the post-communist countries of Eastern Europe, Russia, and Central Asia. In this report, I focus on the first level of my research, the qualitative case studies. To compare the development of market-oriented reforms in healthcare and pensions, I rely on over 50 personal interviews conducted in Moscow, Russia with a wide range of individuals. These interviews included meetings with the following groups: Private Actors in Healthcare including Health Insurance Companies (9 interviews) Including the Interregional Union of Medical Insurers and companies such as ROSNO insurance and Ingostrah Bureaucrats (9 interviews) Including the Ministry of Economic Development & Trade, the Ministry of Healthcare and Social Development, the Ministry of Finance, and the Pension Fund Other Experts & Politicians (17 interviews) Including the former head of Russian Pensioner Party and the Russian Union of Industrialists and Entrepreneurs

3 Pension Investment Companies Pension Investment Companies (13 interviews) Including the National League of Administrative Companies, Aton Management, Uralsib, Alfa Bank, Agana, and Trinfiko Non-State Pension Funds (6 interviews) Including the National Association of Non-State Pension Funds and companies such as Pervii Kapital On initial research trips in 2006 and 2007, I focused on the role of private actors in pension privatization. During the summer of 2008 (the grant award period), I conducted the field research for the case study of Russian healthcare reforms. In doing so, I interviewed government officials specializing in healthcare, representatives of private health insurance companies, and social interests. The government officials with whom I spoke included representatives of the Ministry of Health and Social Development, the Pension Fund, and the Ministry of Finance. The private health insurance companies and other business associations with whom I met included representatives of the Inter-regional Association of Medical Insurance Companies, major Russian health insurance companies from both Russia s mandatory and voluntary insurance systems, and the Russian Union of Industrialists and Entrepreneurs (RUIE). Social interests and other groups with whom I met included individual doctors and additional experts. I also attended the 3 rd All-Russian Medical Forum which was jointly hosted by the Moscow city government, United Russia (Russia s dominant political party), and the All-Russian Social Movement Medicine for the Quality of Life from June th of Because the forum was attended by several hundred participants including regional healthcare providers, doctors, administrators, bureaucrats, and private medical companies, it provided a valuable opportunity to discover the types of individuals and companies that attend such meetings as well as the topics on which their discussions of Russian healthcare focus. In addition to interviews, I rely on a number of secondary sources including official government commentaries to develop a full understanding of market-oriented reforms in these sectors. The Russian government and other legal scholars regularly produce updated collections and commentaries on social policy legislation. For healthcare, the 2008 updated edition of the Complete Collection of Federal Laws on the Protection of Citizens Health is of particular importance for tracking legislative developments. Research Findings and Preliminary Conclusions In healthcare, one of the initial and fundamental market-oriented reforms involves the establishment of an insurance system which provides for non-budgetary sources of financing. Often this involves creating an earmarked tax which covers health expenditures (Belli 2001). This is more than a mere shift in accounting; creating a designated source of financing is intended to help limit government expenditures on healthcare. Russia adopted legislation in 1993 establishing a national health insurance system in which insurance companies are intended to act as intermediaries within the mandatory health insurance system. Mandatory health insurance is financed by payroll contributions from Russia s Unified Social Tax on wages. The system is managed by seven territorial sickness

4 funds that should collect revenue and redistribute the funds to insurers who in turn will compensate hospitals and doctors. The system is designed to create a purchaser-provider divide in order to improve efficiency. However, these reforms have gone largely unimplemented so that in many regions there are no operating private health insurance companies and the territorial funds must act as insurers (Shishikin et al. 2004). Voluntary health insurance is also permitted under the Russian system, so that businesses can offer health insurance as part of a package of employment benefits and individuals may purchase their own insurance. The voluntary health insurance industry is very small in Russia. Although the Russian government made a broad choice about the type of healthcare system early in the transition, many of the details have not been specified or implemented suggesting that the Russian government is uncertain about which measures to pursue. During the summer of 2008, I was primarily interested in answering two questions regarding Russian healthcare reforms: 1) the extent to which business and state actors cooperate in the choice and development of healthcare legislation, and 2) the role of social advocates and popular demands in shaping reforms. Having answered these questions, I was then able to compare the development of healthcare reforms with pension privatization. My research on market-oriented reforms in Russian healthcare suggests several important findings. First, I found that reforms in a particular sector are challenging in distinct ways and uncertainty is the main challenge for governments considering market-oriented reforms in healthcare. There is no consensus on whether market-oriented reforms are harder in pensions or healthcare. Experts specializing in a particular sector tend to emphasize the challenges of those reforms. Some have argued that healthcare reforms are inherently harder because they are more decentralized and there is no international consensus on how they should proceed (Nelson 2001). Other scholars such as Orlov-Karba (2005) have concluded that, pension reform is one of the most complicated and painful problems of the transitional period (p.289). Rather than debating over which reforms are hardest overall, it is more useful to distinguish how they are hard and in particular to note the difference between uncertainty and difficulty. Uncertainty and difficulty are two of the primary hurdles in policymaking and they represent distinct challenges to which governments respond differently. Uncertainty means that information is lacking about pertinent factors. The government may lack information about the future state of the economy, the stability of the existing welfare state, the technical consequences of establishing a national health insurance system, or the projected political responses from various groups. When facing uncertainty, governments should seek out as many sources of information as possible in order to find the most accurate answers to its questions. Private actors, then, are just one source of information among many and are likely to be a biased source of information so that the government may be more leery of relying exclusively on their advice. Difficulty means that there are many interacting variables involved so that there are a number of possible solutions to a single problem. When addressing difficult policy challenges, governments have an incentive to look for help from sources with a unique perspective (such as that of private actors) with which to disentangle technical problems. 1 Because the government had already chosen a general path for pension reforms, private actors were uniquely beneficial in tackling the subsequent technical issues. 1 See Scott Page, Uncertainty, Difficulty, and Complexity, Journal of Theoretical Politics, Vol. 20, No. 2, (2008) for an explanation of the differences between uncertainty, difficulty, and complexity and how institutional responses differ accordingly.

5 Uncertainty was the main problems for the Russian government in pursuing market-oriented reforms in healthcare. An interview with one expert on Russian healthcare reform indicated that there is no accepted model for market-oriented reforms in healthcare. In fact, health reforms can involve a broad set of strategies that fall under systems designed in very different ways. Broadly speaking, policy makers refer to three types of healthcare systems. The Semaskho system was used by communist systems and provided universal, state-funded coverage for all citizens. In a Beveridge system, like that of the United Kingdom, there is a national health insurance system covering all citizens. A Bismarckian system models the German system in which health insurance is based on mandatory contributions paid by the employer. Even within the Bismarckian system which is more market-based than Semashko or Beveridge, there is a great deal of variation in the configuration of the public-private mix of providing services. Several experts with whom I spoke indicated that it would be useful if a market-oriented model existed for healthcare like the three-tiered model promoted by the World Bank for pensions. For pensions, the World Bank (1994) has promoted a three-tiered system including a base component providing a minimum pension, a funded component based on defined contributions, and a supplementary component to collect additional, voluntary savings. In healthcare, however, there are a number of possible strategies for reducing government obligations and spending which do not fall under any single model. The World Bank has emphasized the importance of tailoring market-oriented reforms in healthcare much more than in pensions. In the recent 2007 report From Red to Gray: The Third Transition of Aging Populations in Eastern Europe and the Former Soviet Union, the World Bank highlights how ageing populations make reforms especially necessary in pensions where costs are sure to rise, but notes that there is not necessarily a direct connection between ageing populations and rising healthcare costs. In part because of this, there is no set prescription for restructuring healthcare. This explains why the Russian government was more uncertain about the appropriate model for market-oriented healthcare reforms. Second, I found that in dealing with the uncertainty of healthcare reforms, the government turned to many sources of information of which private actors were just one of many. In healthcare, to handle its uncertainty about which reforms to pursue, the Russian government sought out as many sources of information as possible of which health insurers were simply one of many. The government turned to international organizations and a policy network of specialists with expertise in the experiences of other countries. Since the late 1980s there have also been a number of regional pilot projects in healthcare designed to test potential reforms in Russia. While the government could get more information from insurance companies, these companies did not have a unique advantage over other sources of information. A representative of the Interregional Union of Medical Insurers acknowledged that health insurance companies were not influential on the government. He explained that his organization would regularly prepare reports and submit them to the government, but these proposals were often not accepted. Despite regular efforts to collaborate with the government, he said he could not explain why the government chooses to accept some proposals but not others suggesting that this was the result of a relatively closed political system. Interviews with private health interests revealed that health insurance companies do collaborate with government officials in discussing policymaking in the same way as the Union of Medical Insurers. Companies do so by providing detailed policy reports and cultivating personal ties with particular government offices. However, these attempts have not been successful in promoting new legislative reforms in healthcare. One example of this is an attempted lobbying

6 attempt by corporate employers. In a personal interview, a high-level advisor in the insurance industry indicated that employers had lobbied the government to allow them to opt out of making payroll contributions to the mandatory health insurance system if the company offered health insurance as part of an employment benefit package. Although the Russian government receives information from the insurance industry, these proposals appear to have been largely unsuccessful. Insurance companies and private medical companies also participate in round tables and seminars about healthcare although these forums tend to focus on public health projects (such as decreasing the spread of diseases like tuberculosis and HIV/AIDS or anti-smoking campaigns) rather than the restructuring of Russia s healthcare system. An example of this is the 3 rd All-Russian Medical Forum held in Moscow in June of While a number of private actors were present, the focus was on public health projects and not restructuring the financing system of Russian healthcare. This is especially surprising because the directors of Russian insurance companies indicated that one of the major challenges today is inadequate and inefficient financing in healthcare. As reflected in conferences such as these, however, the Russian government does not turn to private actors for assistance with the design of the healthcare system, but rather for collaboration on public health initiatives. Third, I found that social advocates and popular demands did not shape healthcare reform in Russia. There have not been major structural reforms to the Russian healthcare system since the early 1990s. Several interviewees confirmed that organizations like the Russian Medical Association have not played an active role in policy debates, nor have doctors or medical sector employees. Interviews indicated that the Russian Medical Association acts as a professional organization, but not as a lobbying group. In large part, this is likely due to limited resources with which to organize and pressure the government. Patients advocacy associations are also very weak in Russia. One doctor gave the following example of the weakness of patients associations. In many countries, there is an association advocating the rights of diabetes patients and such an organization is always headed by a diabetic patient. In Russia, such an association exists but is headed by a doctor, not a patient. Popular demands focus on the quality of healthcare, not the means of financing. As such, it is not surprising that the government has not listened turned to social groups in designing the healthcare system. Political responses to citizens complaints about healthcare focus on public health initiatives. This is reflected in the recent discussion about including greater prescription coverage in Russia s mandatory health insurance system. Such a change does not constitute a fundamental change that will improve the efficiency of healthcare financing, or address the inequality across regions. Fourth, the Russian healthcare system is still in need of several critical reforms. The biggest challenges cited by Russian insurance companies (including Rosno and Ingostrah) were the lack of sufficient funds in the system and the inefficient use of the funds that are available. This is largely due to problems that the territorial sickness funds have collecting money. Health insurance companies also noted that there is severe inequality in financing across regions. In a country the size of Russia, one expert noted that each region has its own problems making it difficult to provide uniform solutions across the country. Insurance companies in the voluntary health insurance system revealed that Russia s mandatory health insurance system is monopolized by a few large companies. As a result, it is extremely difficult for other insurance companies in the voluntary health insurance system to

7 begin working in the mandatory system. The efficiency of the health insurance system might be hampered in part by a lack of competition. The mandatory health insurance system has also been plagued by several scandals involving misused funds which implicated one of the major insurance companies, MAKS, and the former Minister of Health and co-owner, Mikhail Zurabov. This monopolization has prevented the development of a more competitive health insurance sector. Evidence of this can be seen in the recent adoption of legislation that by 2011 all healthcare financing in Russia would be channeled solely through the mandatory insurance system. This means that the federal government will not use budgetary resources to cover the expenses of hospitals and polyclinics not covered by the mandatory insurance system. Such a change benefits the several large insurance companies in the mandatory system because they will control more financial resources, but does not help the health insurance industry as a whole, nor does it address the problem of regional inequalities. Fifth, I found that private actors who were not successful in influencing healthcare policy were influential in other sectors such as pension privatization. Interestingly, while the proposals of private actors have not been successful in influencing healthcare policy, private actors have influenced pension privatization. One prominent examples of this includes the Russian Union of Industrialists and Entrepreneurs (RUIE) which represents employers interests and is one of Russia s most powerful organized interest groups. In an interview with a high-level RUIE representative, I inquired as to why some of the organizations were successful while others were not and he responded that, In Russia, everything works in the following way: we offer proposals and the government accepts them or not. When pressed as to why some proposals were successful, he explained that the government simply realized that these were the correct measures. While this is not a satisfying explanation of political influence, it has two important implications. First, even the RUIE acknowledges that it is not influential in all policy areas. Second, this comment suggests that the government turns to private actors for help with some sectors but not others. Unlike in healthcare reforms, for pensions the government knew its ends in that it knew what model it wanted to adopt, namely some kind of funded pension tier. However, the government had not settled on the means or precise design with which to accomplish this because of the difficulty of managing several interacting factors including transitional costs, covering current pension benefits, the logistics of setting up individual accounts, determining what percentage of mandatory savings should be privately invested, etc. To help resolve the difficulty inherent in restructuring pensions, the Russian government needed a new perspective or heuristic with which to make decisions. Private actors in this case non-state pension funds and investment companies had a fresh perspective to add to the pension debate. After 1998, the Russian government was pursuing pension reforms amidst a bureaucratic debate in which the Pension Fund and Ministry of Healthcare and Social Development opposed private management of savings versus the Ministry of Finance and Ministry of Economic Development and Trade who strongly backed bolstering non-budgetary sources of revenue. Private interests were able to offer an informed opinion on the debate without the disadvantage of bureaucratic bias. Personal interviews with government officials, business people, and commercial organizations repeatedly emphasized that everyone agreed on what had to be done and that the debate was over how to do it. In pensions the ends were clear, but the means were not. Lastly, I found that the Russian case reveals a dynamic that exists in other post-communist countries as well, but has not been extensively studied by scholars and policymakers. Nelson (2001) points out that in Poland and Hungary that the government lacked a model for a marketoriented healthcare system like the one it had in pensions. In the Polish and Hungarian cases, private interests were actively included about pension reforms, while insurance companies

8 appear to have been largely omitted in discussions about healthcare policy. Preliminary statistical analysis also confirms the main finding that across the post-communist countries private actors were more influential in pension privatization than in the design of healthcare systems. These results emphasize the importance of the study s findings for other countries. Suggestions for Future Research There are two promising avenues for future research on this topic. First, the research conducted for this project provides a strong justification for a scientific survey of private actors in healthcare and pensions. Prior to this research, there was very little systematic study or interview data about the role of private actors in the development of healthcare and pension reforms. The findings suggest that private actors played very different roles in each sector. Building on this, a systematic survey would provide valuable evidence which could be independently analyzed by a wide range of scholars in policymaking and the social sciences. One shortcoming of interview data is that, while it provides a solid foundation for understanding causal mechanisms, the findings are highly contingent on interpretation by the author. The next logical step in this research is a more systematic survey, the justification for which would not be possible without the current research. A survey would also overcome the effects of any potential selection bias on the findings. Although I contacted as many individuals and companies as possible in each sector, there may be something unique and systematically different about those businesspeople who agreed to speak with me. In this project, I was able to minimize the consequences of selection bias by complementing interviews with secondary sources and official government commentaries. By talking with a wide range of individuals, I was also able to gauge the plausibility of the answers I received. This bolsters the case for expanding the research to include survey research as it verifies that the present findings are not spurious. Second, future research should expand the analysis to additional countries and policy sectors. Additional countries include not only post-communist countries in the region, but also other transitional countries around the world. Doing so would allow us to observe whether uncertainty consistently drives institutions to seek out more information from many sources, while difficulty creates incentives to seek out groups that can offer a new perspective or heuristic with which to resolve policy challenges. The analysis should also be expanded to other policy sectors. While it has been popular to examine these issues in the post-communist countries as questions of transitional politics, the focus here is not on transition. Rather I look at how private actors differed in their influence across two sectors characterized by a similar political debate during roughly the same time period. The transition is methodologically convenient as it produced similar political debates with a comparable configuration of actors to observe. We could imagine finding similar comparisons across sectors in developed countries as well. If the government considered a certain type of reforms in two sectors with the same set of actors, then the study could be repeated elsewhere. For instance, consider environmental reforms in two different sectors. This research has implications for questions such as why businesses would be more actively involved in developing environmental regulations in one sector over another. Specifically, this research suggests that the government will not turn to private actors when it faces uncertainty about reforms, but it will when it faces difficulty in implementation. My future research agenda includes testing the implications of this study in other policy areas.

9 Recommendations for the US Policy Community This research suggests two important recommendations for the American policy community. First, when studying the post-communist countries policymakers should take into account the potential influence of private actors on the government. In particular, businesses that stand to profit from a market-based system have the potential to substantially influence the course of welfare transformation. Policymakers should be attentive to whether a policy decision is especially characterized by uncertainty and difficulty because technical policy characteristics may cause the government to turn to particular groups for assistance. Second, this research offers insight into the conditions under which private actors are likely to actively influence policymaking in general. Private actors will be more influential in solving difficult problems than reducing uncertainty over which reform model to select. Businesses attempting to influence the government should emphasize their unique perspective in handling difficult policy challenges.