**3. Conceptual underpinnings and related literature**

In the light of the new UHC Act and the attention directed to the health sector due to the pandemic, a primordial question is raised. What is the appropriate governance structure framing a pluralistic health system often found in many low and middleincome countries (LMIC), such as the Philippines? From an economic organisation perspective, Williamson ([14], p. 673) viewed operationalising the concept of governance from 'the lens of a contract (rather than the neoclassical lens of choice)'. This perspective views the unit of analysis concerning the organisation problem not in terms of the individual but of the transaction. According to the early (mid-twentieth century) institutional economist, J. Commons, a contract 'must contain the three principles of conflict, mutuality and order' ([14], p. 673). This section extends the analysis of the organisation of national health insurance as a social contract problem, examining the nature of transactions in health care, the practice of rules, regulations, source(s) of organisational stability, and the relations with stakeholders fostered.

Commons' view of the contract contextualised in economic organisation lens as conflict-mutuality-order is similar to the impetus for the classical social contract. The work of early political philosophers, however, emanated from the perspective of *individuals* agreeing to a code of conduct, with the state's role as arbiter and enforcer. Loewe, Zintl, and Houdret [15] went on to define a social contract as 'the entirety of explicit and implicit agreements between relevant societal *groups* and the sovereign (the government and any other actor in power), defining their rights and obligations toward each other' (p. 3). Bautista, in 2020, explored the notion of a social contract in health care developed from the economic and socio-legal lenses [13]. It was quite convenient to examine the current state of the *organisation,* PhilHealth, as being in the 'state of nature' or anarchy in the classical social contract or Hobbesian sense.

In relation to the organisation of an inclusive national health insurance scheme in a pluralistic health system, one may say that it is a source of conflict. It is, thus, also a source of measuring power relations among societal groups or the political economy view. Bloom, Standing, and Lloyd [16] covered the political economy perspective and examined the issue of power emanating from knowledge gaps in different health care social contracts. From an economic perspective, the conflict that arises from the access and exercise of the state's power over the public-private purse in health financing involves transaction costs. Transaction cost refers to the cost of bargaining, contracting, and monitoring [17]. Avoiding or minimising transaction costs underpins arguments, at both theory and policy levels, on the types of arrangements or governance systems to bring out societal or organizational outcomes. Mutuality lies in the consensus on the goals of efficiency, equity, and quality of care. Will the order

established following the pandemic and the launch of the new UHC Act be one of breakdown or continuity?

From a conceptual point of view, a governance lens covers three alternative arrangements—markets, hierarchies, and networks (MHN). Hence, a transaction cost analysis can present the problem as an organisational and design issue. This framework has seen the wide application since the beginning of the new public management reforms in the 80s. It has informed changing managerial practice in health care in countries, particularly health systems similarly organised as the English National Health Service [18].

### **3.1 Market**

This section investigates the nature of exchange or interactions in the health system. The starting point is considering interactions in health care or insurance as a transaction of exchange. The discussion on the features of health insurance, at the beginning of the chapter and from microeconomic theory, highlights the argument that health care and health insurance are unlike other commodities traded in the market. The nature of transactions in health insurance is such that premiums, or the price of insurance, and pay-outs, or claims, in the form of benefit services, are not equivalent to the price and quantity nexus in the normal demand (and supply) for goods [2]. Presently, under pandemic conditions, for instance, there is more certainty to the need for health insurance. However, insurance cover for a 'sure thing', given prevalence and transmissibility, will not be available, or when available will be quite costly. With uncertainty in the amount and timing of incomes, an inherent feature of informal work, health insurance may be unaffordable. If it is unaffordable, then there is a lack of effective demand (and supply is not interested in lower prices).

Willingness to pay for health insurance is between 1.18–1.39% of GDP per capita for a year's contribution from the 16 studies included in a systematic review [19]. The lack of a general understanding of the benefits of health insurance has been the point of entry for randomised controlled trials involving the informal sector in Vietnam, China, and Philippines [20–22]. Observations were made on whether those who were provided with more information on health insurance, its benefits, and how to access them in the country would behave differently from those that did not receive such information. Other tweaks to the field experiments included having transport vouchers and/or having some handholding navigators who directed and even accompanied study respondents to the insurance offices. Evidence gathered from these studies indicated small improvements in demand, but severe income constraints and the lack of affordability prevailed. Other reasons cited were related to the perception of poor quality of services covered and complicated enrolment procedures.

### **3.2 Hierarchy**

In the original tenets of Coase [23], market transactions have zero transaction cost, and the decision to be in the hierarchical ordering, that is, establish the firm, is a way to counter increasing transaction costs [24]. Public policy applications highlight the costs to the hierarchical arrangements, that is, government institutions. The costs of government intervention can be assessed and compared to outcomes that would have risen had they been left to the market. The government's exercise of influence, if not control, on the behaviour of various agents, is a source of conflict. Balancing competing interests has its costs and benefits. In standard economics language, a

#### *National Health Insurance, the Informal Sector, and Elements of a New Social Contract… DOI: http://dx.doi.org/10.5772/intechopen.103720*

Pareto solution reconciles everyone's interests, with the winners compensating the losers. In the health system, a social contract solution holds when institutions come to an agreement or reconcile their interests for the common good, to achieve desired outcomes.

The government's role in the health sector, given the inherent failures in the market, is seen as being provider, funder, and regulator. Standard textbooks view regulations as correcting for market failures, particularly in sectors with high externalities, non-competitive markets, and with deep information asymmetries [25]. National health service types of systems, such as in the UK and Canada, started as largely state provision and funding. The late 80s to 90s saw their evolution into quasi-market organisations separating state provision from state funding. The provision remains with the state, but some institutions are governed by boards and can compete for state funds and across other state bodies [26, 27].

How the government succeeds in its role can determine its ability to manage conflict and establish order. From an economic organisation perspective, government mirrors vertical integration or the hierarchical structure. In a pluralistic economy, where the private sector is extensively involved, the government's ability to be a balancing force is affected by the extent to which providers and other groups influence the regulatory process. Government reaches to other agents to secure its goal of assuring and protecting the health of citizens. The capability of the government to enter into commitments, usually through contracts with other sectors, has a consequence for transaction costs in the interaction. Schuhmann and Bautista explored the nature of contracting envisioned in the new Philippine UHC Act [28]. Government regulators deal with its 'regulatory hands' through command and control, delegation to the professions to practice self-regulation, contracting, and/or through the use of incentives to elicit desired behaviour.

There is mixed evidence on the role of incentives in improving health service performance [29]. The use of incentives is attempt to counter the limitations of the regulatory approach in the light of 'influence activities' [30] or regulatory capture, leading to corruption and inefficient public services. Low powered incentives, such as low salaries, can impede actions towards creating greater efficiencies. It is in the compatibility of incentives with the goals set out that the directions of policy reforms and the preferences of the legislature and the bureaucracy can be discerned. Eijkenaar, et al systematic review of systematic reviews on the effects of pay-for-performance in health care did not find convincing evidence of cost-effectiveness and instead found persistent inequalities and some unintended consequences for unincentivized care [31].

Salazar [32] found shortcomings in financial reporting practices by PhilHealth, along with declining financial health from 2015. From 2006 to 2015, premiums exceeded benefit claims. Until 2013, premiums from paying members were the most important source of revenues. Average contributions from the informal sector payors were below premiums due, because of the overstatement in the members list and lack of tracking for delinquency in payments or inactive members. The category of nonpaying members, those that received government subsidies widely instituted through the 'sin tax' law, grew by 37% in 2015. The study noted that 53% of benefit claims were made by non-paying members' benefits. Benefit claims from the informal economy were three times their premium contributions. The new UHC Act full implementation is expected to expand subsidies. Citing a study by Gertler and Solon [33] 86% of increases in funding to PhilHealth went to payments for health care providers as profits or higher salaries. Cross-subsidisation was maintained, with formal workers subsidizing benefits of other sectors on some periods, while subsidised members by

government pro-poor programmes showed some volatility between negative and positive net contributions. The informal economy members were consistently at the receiving end of cross-subsidies. The medium-long term prospects of PhilHealth's net worth were not optimistic. In the midst of the fight against the pandemic, with the various anomalies in fund utilisation and employees' behaviour, the President of the country announced that he would make a request to Congress to abolish PhilHealth [34]. This remains an empty threat, however, as Presidential elections are scheduled for May 2022.

## **3.3 Networks**

Referring to a 'broad set of collaborative approaches that are useful for bringing stakeholders together' [35], network arrangements can be considered a looser organisational form. Whether it can be viewed as a third-best alternative, when 'market fails' or 'regulations fail' is a normative question. A convenient view would be to see it as running along the same continuum—straddling the range of market and hierarchy, a hybrid of elements from both, plus other features. This is possibly an appropriate perspective for the subject of interest—the informal labour sector. This issue means balancing interests in informal sector's access to social health financing and health service benefits. To bring the interests of disadvantaged groups in the bargaining processes for the health care system's allocation calls for mediating institutions. The experience with financing cooperatives has not sustained membership for the individual economy programme. A leading cooperative planned to set up its own facility. The increased funding in the Z benefit programme (for catastrophic cases) and the coverage of some chronic disease maintenance costs, including dialysis, has seen private sector investments in stand-alone clinics. Patient groups have also been increasingly engaged in the discussion.

A review of widespread adaptation of networks in the British health service showed its growth among primary care, and other settings, and a reduction in the role of acute hospitals. The buzzword is 'collaboration' as opposed to 'competition' in market arrangements. It is also recognised in the participation of voluntary and private sectors in outsourced work 'commissioned' by the public sector. Performance tracking is a central activity. The latter's role has moved out from direct provision to one of purchaser or funder [36, 37].

From an LMIC perspective, collaboration takes place when the government reaches out to non-governmental organisations (NGOs) as well as the private sector to perform its traditional functions. The use of cooperative banks and other financial institutions to collect premium payments from the informal sector is one form. But it is not extensive enough to be called a network, rather public-private partnership has been used to describe it (Joint Learning Network). Examples remain few in the Philippines, surprisingly since it has one of the most vibrant NGO sectors actively engaging in the public sphere. There are no accounts of the private health clinic being contracted by the government to deliver primary care in geographically isolated areas where primary care needs abound. There are private clinics contracted to provide overseas employment medical checks, but for the most part, private and public health sectors in the Philippines are co-existing in parallel, if not in competition. Massive public sector investments in government health facilities have seen expanding capacities, in beds, laboratories, and services; while recent private sector developments have seen growing corporatisation and subsidiarity.

*National Health Insurance, the Informal Sector, and Elements of a New Social Contract… DOI: http://dx.doi.org/10.5772/intechopen.103720*

Aside from income and basic demographic characteristics affecting demand for social health insurance from among the informal sector, trust in these institutions, from registering enrolment, collecting premiums, providing the medical services, including the attitudes of doctors and staff were found to determine willingness to pay and utilisation of services [38]. This was confirmed in a 2020 systematic review study by Miti et al. [39]. Willingness to pay for health insurance and pension scheme among informal economy sectors were strongly associated with income and trust. Experience of illness, attitude, and presence of doctors as well as distanced all played a role. The credibility of institutions to the people and trust are key to insurance products [40] and the lack thereof undermines it.
