Saudi Arabia is one of the richest country in the world, specifically because of its oil-rich land which drives its economy. It has also one of the highest per capita income in the world. In 2008, the per capita income was estimated to have been US$ 24,000. Along with its economic and financial growth, the country has also invested largely in healthcare services, specifically for its constituents. As a testament to such, the World Health organization has ranked Saudi Arabia 25th, out of 190 countries (The Patient Factor, n.d.).
The country first forayed into public health in 1925. During that period, the then incumbent King Abdul Azziz established the department of public health. However, due to the insufficiency of funds, the provision of health care was largely lacking. The government was unable to give free health care to most of its population, leaving the locals highly dependent on traditional medicine and self cures (Almaki, et al., 2011).
The government currently provides all constituents, both citizens and working residents of other countries situated within its territorial jurisdiction free access to its healthcare services. Through the Ministry of Health, three levels of health care services are being provided, namely primary, secondary and tertiary. Cases which are preventive and do not require specialized skill are treated in the primary level, whereas more difficult ones or those which need more advanced treatment are referred to secondary care. Meanwhile, those which require hospitalization and technological intervention are being handled in the tertiary level (Almaki, et al., 2011).
Currently, motor and medical insurance has been made mandatory by the government. The growth of the insurance industry has been fuelled by the relatively young population of the Kingdom. In 2010, it has been estimated that two thirds of Saudians are below the age of 30 (Saudi Hollandi Capital, 2013).
Moral Hazard in the Saudi Arabian HealthCare System
The Ministry of Health has maintained its stance in providing free and full healthcare access to all citizens and residents alike, regardless of their nationality. This means that it does make available its health services even to tourists and to transients.
As home to the Hajj, wherein devotees believe that their pilgrim travelled from Medina to Mecca, Saudi Arabia attracts hundreds of thousands of pilgrims annually. During that 5 day period however, these large number of pilgrims pray and walk around the wailing wall, increasing the risk of a stampede occurring. In 2015, it was estimated that 700 people lost their lives due to the stampede. Thus, as a security measure it was reported that the Saudi government plans to give away electronic bracelets containing personal information of each devotee (Battacharya, 2016).
The business dictionary defines moral hazard as a situation which increases the statistical chance that a loss will occur. Such is brought about by incentives which are available to the person involved, inducing him to take or engage in riskier than normal behavior, knowing that he or she will be insured from any negative consequence. Thus, during hajj season, these transient devotees who are given full and free access to quality healthcare may take more risks than usual. For instance, knowing that they are insured from any untoward accidents, they may forego taking a travel insurance or that they may be more empowered to take the dangerous pilgrimage despite the stampede risks involved (Almaki, et al., 2011).
With the government accounting for eight percent of the country’s healthcare services, most Saudi nationals regard healthcare as their right, rather than as a privilege. Thus, these locals actually demand the best service and expect it to be given to them freely, by virtue of their citizenship (Mufti, 2000).
Several strategies are available to reduce moral hazard. One is to add a deductible, another is to compel the insured to shoulder either a fixed amount or a percentage of the cost incurred in obtaining medical service. For companies which allow a percentage of the expense to be borne by the insured, such is called a co-insurance. Meanwhile, those which require a fixed amount to be paid for every availment of a medical service have a co-payment arrangment with the insured party. Lastly, a deductible is a fixed amount to be paid by the insured agreed upon during the inception of the contract.
The Kingdom’s insurance market is in its infancy stage, and in fact it is a sector once thought to have been unnecessary due to the public nature of its health services. In 2015, there has been 35 insurers licensed to conduct business in the country. This was a result of the health and motor insurance being made mandatory by the government (Hurley, 2015).
However, these companies have failed to achieve profitablity. A year before, 10 out of these 35 players have requested accessed to the Saudia Capital Market, an indication that the insurance industry continues to lose its value (Hurley, 2015).
As can be seen in the diagram below, moral hazard increases the cost of the medical service. Since it is the insurance company which will handle the cost of the medical service, the insured will most likely incur more types of services, necessary or not.
A
Adverse Selection
Adverse selection refers to the tendency or the probability of an individual carrying more risk to avail of insurance, or numerous insurance to hedge himself from any untoward incident. It has been mentioned that insurance companies rely on information deemed private to properly and adequately assess the insured. With that data, the premium, the level of risk entailed and the depth of insurance coverage may be determined. On one hand, to counteract the negative effects of adverse selection, healthy individuals, or those with a lower propensity for illness should also avail of insurance contracts, increasing the financial pool of the provider. (Keane & Stavrunova, 2014).
With motor insurance being mandatory and compulsory in the Kingdom, all drivers are required to obtain one. Such started in 2003 when due to the rise in motor vehicle accidents, the courts and jails of in Saudi Arabia have been clogged with incidents involving such form of offenses. The government thus decided that requiring drivers to acquire insurance would decrease their propensity to engage in reckless behavior when in the wheel (AI-Elg & Hoque, 2003)
However, in getting such insurance, only their age is being required. Further, in contrast to insurance in the United States for instance, motor insurance in Saudi Arabia is made against the driver’s license, not the vehicle. Thus, during accidents, a driver with motor insurance may claim to have been liable, even if in actuality, a different person was in driving at that moment . With age only made available to providers, adverse selection has been inevtiable in the Saudi insurance system (AI-Elg & Hoque, 2003).
Further, with health insurance for example, expatriates immersed in non-skilled work are actually excluded from the vast coverage of the free and full Saudi health system provided by the government. However, companies which employ them are required to obtain health insurance for their workers. As such, these workers which earn less than most individuals in the Kingdom are the ones with medical insurance. Their limited access to health care likewise increases the risk of them having diseases and illnesses (Mufti, 2007).
In 2013 for instance, Sri Lanka enacted a law that will provide medical insurance to its nationals employed as domestic help in Saudi Arabia. It involves the giving of up to SR15,000 worth of medical coverage to its workers. With household help being unable to access medical assistance in the Kingdom, the insurance would inevitably be utilized by the sector with a high propensity to be sick and or avail of such services (MD Rasoldeen, 2013).
Asymmetric Information
Asymmetric information is inevitable in the insurance industry. Usually, the insured would have more information about his propensity for risk than he would like to disclose. As a result, risk tendencies are assessed using standard schemes and external observable or deductible conclusions (Chiappori & Salanie, 2013).
Such concept of having information not readily available to the other party also increases th moral hazard involved. With the provider having no access to data other than age, those with the mandatory motor insurance in Saudi Arabia may deliberately involve himself in an accident. This way, he may be able to take advantage of the financial benefits of the insurance he has availed of (Mufti, 2007).
Mutual asymmetric information has also been observed especially in the patiuent-physician relationship. While patients may withhold information deemed crucial from the physician and from the provider itself, the physician may also not exhaust the disclosure of possible treatments, implications and or repercussion of the medical situation at hand. As a result, unnecessary procedures and tests may be made, burdening the insurance company (Schneider, 2004).
In Saudi Arabia, those availing insurance would expectedly not disclose all possible diseases they have in their bloodline and genetic tree. This they would most likely engage in, since it would increase the amount of premiums that are to be paid The provider thus would have to work in an environment wherein information is expectedly assymetric. Further, since the industry is still in its infancy, companies are not compelled to share an information database of common clients. Thus, information within and among providers are likewise asymmetric (Mufti, 2007).
Works Cited
AI-Elg, A. & Hoque, M., 2003. Charting Changes in Saudi Arabian Insurance Industry. Academia.
Almaki, M., Fitzgerald, G. & Clarke, M., 2011. Health care system in Saudi Arabia: an overview. Eastern Mediterranean Health Journal, 17(10), pp. 784-792.
Battacharya, A., 2016. Quartz. [Online] Available at: http://qz.com/721918/saudi-arabia-is-giving-hajj-pilgrims-high-tech-safety-bracelets/[Accessed 3 July 2016].
Chiappori, P.-A. & Salanie, B., 2013. Columbia. [Online] Available at:http://www.columbia.edu/~bs2237/InsuranceHdbk.pdf [Accessed 3 July 2016].
Hurley, R., 2015. Will KSA Lead The Region On Insurance Reform?, s.l.: Mondaq.
Keane, M. & Stavrunova, O., 2014. Adverse Selection, Moral Hazard and the Demand for Medigap Insurance. Nuffield Economics Papers, p. 76.
MD Rasoldeen, 2013. Arab News. [Online] Available at: http://www.arabnews.com/saudi-arabia/new-insurance-scheme-protect-lankan-workers-saudi-employers[Accessed 3 July 2016].
Mufti, M. H., 2007. Healthcare Development Strategies in the Kingdom of Saudi Arabia. In: Healthcare Development Strategies in the Kingdom of Saudi Arabia. s.l.:Springer US, p. 136.
Saudi Hollandi Capital, 2013. Saudi Hollandi Capital. [Online] Available at: http://www.shc.com.sa/en/PDF/RESEARCH/Insurance%20Market%20in%20Saudi%20Arabia.pdf[Accessed 3 July 2016].
Schneider, U., 2004. Research Gate. [Online] Available at: https://www.researchgate.net/publication/23690015_Asymmetric_Information_and_the_Demand_for_Health_Care_-_the_Case_of_Double_Moral_Hazard[Accessed 3 July 2016].
The Patient Factor, n.d. The Patient Factor. [Online] Available at: http://thepatientfactor.com/canadian-health-care-information/world-health-organizations-ranking-of-the-worlds-health-systems/[Accessed 3 July 2016].
