Informal payments: a symptom of the growing pains of transition or a stable feature of the health system in Russia?

Findings from our survey demonstrate that an astonishing 80.9 per cent of all respondents (n = 796) have spent their own money in order to receive medical services that were declared as free, including official payments charged by the hospital (for example, for pharmaceuticals, or extra diagnostic procedures) and informal/illegal payments to doctors and other health professionals. Even if we assume that not all of these are illegal contributions falling into the category of ‘under-the-table’ payments, the evidence that the system has (once more) failed to deliver on its promises to provide free and responsive services is overwhelming. What could be the reasons behind this apparent failure of the public health financing system?

The position adopted in this study is that informal payments are only partly related to the transition processes identified by many researchers (Thompson and Witter, Reference Thompson and Witter2000; Ensor, Reference Ensor2004; Allin et al., Reference Allin, Davaki and Mossialos2006; Gaál et al., Reference Gaál, Belli, McKee and Szócska2006), while their fundamental causes go beyond it. The reasons are institutional, historical and political. The Russian Federation was among the first post-communist countries in Europe and the FSU to reform its state-planned and provided health system, replacing it with the social health insurance scheme. However, its implementation proved difficult if not impossible in a country that lacked any experience in the organised health care market, contractual arrangements, financial flows and regulation (Lewis, Reference Lewis, Mossialos, Dixon, Figueras and Kutzin2002; World Bank, 1997). By transplanting the social health insurance idea into the vacuum of necessary institutional arrangements to serve as a mechanistic tool for money collection (Sheiman, Reference Sheiman1994), the scheme was not destined or even perhaps intended to bring either transparency in resource allocation or a higher responsiveness to users' needs. Nonetheless, the lack of explicit regulation and non-enforcement of the existing laws (TACIS, 2000; Fotaki, Reference Fotaki2006), obscure governance arrangements not boding well for accountability, the absence of transparent agreements impeding competition and the effective operation of agent-insurers (Preker et al., Reference Preker, Jakab, Schneider, Mossialos, Dixon, Figueras and Kutzin2002) are only partial explanations for the failure of social health insurance. Crucially, the early days of economic liberalisation and marketisation resulted in a ‘kleptocracy’ rather than a fine-tuned regulation, which is indispensable for the market to function properly. This has produced social dislocation bringing ‘many tears’ more than ‘fulfilling hopes’, contrary to the original assertions and expectations (for example, see Barr, Reference Barr1994). With the market system failing to capture the aspirations underpinning Russian, and to a degree also Soviet polity, and with worsening living conditions for many, it was slowly replaced by centralised state corporatism.

As I argue in my theoretical framework, the historical forms of social organisation, rooted in the tradition of collective governance combined with strong and authoritarian power at its centre (Vlachoutsicos, Reference Vlachoutsicos1998), played an important role in shaping citizens' expectations and the current political system. The embryonic form of health care provision already existed in pre-revolutionary Russia. It was organised by local councils on a communal basis in so-called ‘zemstva’ and offered by the landowner to the rural inhabitants (Eklof et al., Reference Eklof, Bushnell and Zakharova1994). This model was extended to a system of collectivised units, offering comprehensive, albeit very modest, forms of universal health services during the Soviet period, and was combined with a peculiar system of occupational discretion applied (mostly as benefits in kind) to various ‘deserving’ groups (for example, the military, state officials and specialised professional groups). Soviet medicine was often hailed in the past as one of the few redeeming features of an otherwise bleak and totalitarian system and as a model worth emulating; a view that was held by many, including the World Health Organisation (Field, Reference Field, Millar and Wolchik1994).

However, the system was not quite as equitable or as efficient as it was proclaimed to be. Health care intended for the majority of the population was largely driven by crude utilitarianism and considered to be a ‘non-productive sector’ of the Soviet economy, rather than an intrinsic good in its own right worth investing in. Hence, its ‘development’ occurred via increasing the number of rudimentary qualified and underpaid physicians, and via expanding bed capacity (Chernichovsky et al., Reference Chernichovsky, Gur and Potapchik1996) and poorly equipped facilities. The under-funding and inefficiency of the health sector created incentives for various forms of informal payments even during the Soviet Union era, although these forms of circumventing the official law were mostly reserved for elite practitioners and their clients (Field, Reference Field1989; Shishkin et al., Reference Shishkin, Bogatova, Potapchik, Chernets, Chirikova and Shilova2003). Yet it would be a mistake to conclude that the proliferation of informal payments in post-Soviet Russia is simply an exacerbation of a pre-existing phenomenon, as some have argued (Allin et al., Reference Allin, Davaki and Mossialos2006; Rose, Reference Rose2006). It is more likely that they originate in cumulative effects of neglect of the health care infrastructure and under-investment from at least the 1970s and the early 1980s onwards (Rowland and Telyukov, Reference Rowland and Telyukov1991), and the economic collapse of the former political system with the ensuing crisis in public financing in the early 1990s. With an unpaid workforce and deteriorating facilities and shortages of drugs and consumables, out-of-pocket, private legal and informal (frequently illegal) payments were all used initially to counteract the absence of adequate funding in Russia and other post-communist countries in Europe and the FSU (Thompson and Witter, Reference Thompson and Witter2000).

However, there is no doubt that the introduction of the health insurance system has totally failed to counteract the further development of the shadow economy and to prevent the rise of illegal payments which already existed at the periphery of the planned economy (Kaser, Reference Kaser1976; Field, Reference Field1989). Instead of introducing transparency in money flows and user empowerment, it has led to what one Russian researcher termed as ‘state-regulated corruption’ (Rybakov, Reference Rybakov2005). Thus, the shock therapy of economic deregulation and shoddy privatisation implemented in Russia and many other countries undergoing the ‘transition from plan to market’ (World Bank, 1997) was instrumental in turning these emergency measures into a permanent feature of their health care systems. Today informal payments are a common and growing tendency in health delivery in Russia, with patients having to pay or co-pay for medical services officially (for drugs and other services in hospitals and polyclinics) and informally to secure essential services and a basic level of care from doctors or nurses (see Boikov et al., Reference Boikov, Feeley, Sheiman and Shishkin1998; Shishkin et al., Reference Shishkin, Bogatova, Potapchik, Chernets, Chirikova and Shilova2003; Fotaki, Reference Fotaki2006). This has led some other researchers to wonder whether social health insurance was at all compatible with the model of unrestrained privatisation of the early transition in Russia (Burger et al., Reference Burger, Field and Twigg1998; Twigg, Reference Twigg1998).

Yet it should come as no surprise that market liberalisation in health care failed to bring the benefits of competition and individual freedom of choice, such as improved services and user empowerment. The reason is that these outcomes are more likely associated with an exchange of commodities, rather than with the production of public goods. Moreover, introducing competitive social health insurance in Russia could not speak to, and cohere with, a society shaped by communitarian egalitarianism, even in its distorted form. But as the market has not lived up to its expectations, egalitarianism – with its commitment to social justice – has been transformed into an empty statement too. The most prominent example of this is the illusory entitlement of all citizens to ‘free access to comprehensive health care’, which is constitutionally enshrined (Constitution of the Russian Federation, 1998), all the while that informal payments are relied upon as an increasingly attractive and dependable option for financing health care. This gap between rhetoric and reality in the current health policy is not only a simple continuation of the ‘long on promise and short on delivery’ legacy from Soviet times. The ‘market’ that is so created is also ‘parasitic in that it feeds off the budgetary constraints in the finance of medical services’ (Ensor, Reference Ensor2004: 240), not meeting economic efficiency and good governance criteria. This leads me to the conclusion that maintaining informal payments as a dependable source of financing health care turns out to be a political issue, as I will argue in the following section.

Policy options for addressing informal payments: co-payments and private insurance?

The ways of incorporating informal payments into the health financing system have been debated in Russia for some time now. There are increasing calls for an explicit regulation of this informal public–private mix by both libertarians and egalitarians. Policy options proposed by the former envisage increasing the role of private financing in one form or another via co-payments and the promotion of voluntary health insurance (Shishkin, Reference Shishkin1999; TACIS, 2000). Libertarians argue for legalising informal payments in order to reduce the size of the informal economy in health care, and in order to curb the unjustified demand for services (World Bank, 2000; Lewis, Reference Lewis, Mossialos, Dixon, Figueras and Kutzin2002), which, it is argued, will also empower citizens by dispelling the myth of free health care. Egalitarians, on the other hand, nurture some hopes that legalised and modest co-payments may improve access by freeing up some resources for public use, which are presently used by the better off instead of those in greater need who cannot afford them (Gaál and McKee, Reference Gaál and McKee2004, Reference Gaál and McKee2005). In their different ways, both discourses rationalise and normalise informal payments as a semi-legitimate source of financing public health care. Thus, this ‘pragmatic’ approach is not far from the ex-post validation of what would otherwise seem to be an unacceptable practice at both empirical and conceptual levels.

Evidence presented in this and many other studies from economies in transition (for example, Ensor, Reference Ensor2004; Belli et al., Reference Belli, Gotsadze and Shahriari2004; Lewis, Reference Lewis, Mossialos, Dixon, Figueras and Kutzin2002; Vian et al., Reference Vian, Grybosk, Sinoimeri and Hall2006) suggest that informal payments are far from the optimal solution. It is also doubtful whether the practice of introducing co-payments to eradicate informal payments and to provide an alternative source of revenue can be fulfilled. This is because the proportion of the population who would be prepared to co-pay for services, and the amount they would be able to contribute, are not sufficient to serve as a dependable source of finance, as shown in our study (see Figures 4 and 5). On the other hand, if substantial co-payments are introduced they will have a negative impact on equity. Already a sizeable percentage of our respondents, 42 per cent of the total sample, reported a lack of affordability of any paid services (see Figure 4).

Our finding is also supported by another empirical study conducted in 2002 in two regions of Russia, in which older people in rural areas were shown to be unable to afford even the most modest co-payments (Shishkin et al., Reference Shishkin, Bogatova, Potapchik, Chernets, Chirikova and Shilova2003). And, while it is difficult to hypothesise about the size of the unjustified demand, the low level of public health expenditure at around 3 per cent of GDP in post-Soviet Russia (compared to an average of 6–8 per cent in EU countries – see World Bank, 2008) and the findings of the study suggesting that almost 50 per cent of respondents across all groups had to forgo medical treatment because of a lack of money, indicate that the ‘over-consumption’ of health services, implied in libertarian arguments, is unlikely to be a widespread phenomenon in Russia and other FSU countries (Narayan, Reference Narayan2000; TACIS, 2000). Moreover, Falkingham (Reference Falkingham2004) demonstrates that administering and monitoring exemptions from formal co-payments had proven to be both difficult and costly, adding to the burden of payments that users already face in Tajikstan, for example.

The other frequently proposed measure, that of using voluntary health insurance as a potential mechanism for absorbing the bulk of informal payments, cannot be relied on as a remedy either. As shown in our study, private insurance would have serious equity implications for many of our respondents, who could not afford any payments. This is not likely to change even if proposed tax breaks, a common form of subsidy from public money in favour of individuals who can pay, is introduced to encourage its uptake. More importantly, informal activity in health is usually part of the wider informal economy (Tanzi, Reference Tanzi1998), which contributes to reducing the government's overall ability to raise finances through formal channels (Bogetič and Hillman, Reference Bogetić and Hillman1995). It is therefore unclear how these measures if implemented in health services alone might prevent the extortion of illegal payments on top of the legal ones, as evidence has already shown (Falkingham, Reference Falkingham2004).

The acceptance of the ‘transitional necessity’ of informal payments or their legalisation as co-payments, either because they empower users in the view of libertarians or because they serve the greater social good of maintaining provision of services according to the view of egalitarians, is truly perplexing. By considering these alternatives as realistic policy options, market efficiency and the equity principle are both likely to be violated. This double failure of market liberalism and egalitarianism originates in utilitarian premises, running strongly through, and influencing differently, both grand narratives. Utilitarianism morally compels us to act in such a way as to produce the best outcome, whether in the pursuit of Bentham's (Reference Bentham1781/2000) positive utility (conceptualised in terms of a greater degree of happiness) or to minimise negative utility (by avoiding a greater harm: see Hare, Reference Hare1981, for example). Utilitarian considerations were central to the design of the communist and socialist economy, frequently taking priority over other health care as a means to an end rather than as a good with its own intrinsic value. Utilitarianism was frequently called upon in the pre-existing Soviet system to explain away the imperfect reality created for the benefit of the many. Informal payments existing at the fringes of collectivist society, for example, were tolerated as a relatively unimportant and transitional feature in the path towards the idealised (and utopian) future. Conversely, after pluralism and liberalisation prompted a dramatic shift from a planned to a market economy in Russia in the early 1990s, a utilitarian conception of individual liberty was employed once more; this time in the service of the market. Unsurprisingly, spiralling informal payments are seen (again) as a transitional phenomenon that will eventually result in a better overall outcome and as a price worth paying for greater liberty by the market proponents. Paradoxically and yet unmistakably, there is a convergence between libertarians and egalitarians in their approval of informal payments as new, potentially attractive forms of financing health care, in the absence of adequate financing from other sources. Yet the utilitarian belief in the possibility of offsetting individual harm by producing greater gain for the other (many) individuals has to be objected to, not only because of its moral consequences for those individuals who are not in the category of the ‘many’, but also because it is used to justify the totalising discourse of the market which turns out to be no less tyrannical and no less totalitarian in its intent than the ideology it opposes.

Private provision of health care or solidarity or both?

The majority of respondents across the regions studied thought it was the duty of the state to provide appropriate health care, and that even private financing and provision of services should be linked to the state system. It appears that many users of health services still place their expectations of a good public health system with the state, although quite a few respondents from Moscow City favoured the development of a non-state private health system. Yet Moscow City, a separate region and a political and business centre of the country, is an outlier and owes its unique position to much higher incomes. This is why Muscovites taking part in the survey were more likely to be able to afford much higher payments but were also less likely to be asked for informal contributions. The high percentage of respondents from the other three regions declaring difficulties in affording private medical care confirms the existing income gap between the capital city and other regions. Half of respondents in Yaroslavl (with the lowest income levels of all study sites) and over 40 per cent in Murmansk and Moscow Region could not use health services because of their inability to pay for them.

These findings might shed light as to why the idea of a ‘free and comprehensive health care’ persists in policy discourse, even if it has turned into a mere rhetorical pronouncement in reality. This, I argue, is because it taps into the deeply entrenched social aspirations of equality championed by the Soviet ideology, which market liberalism has utterly failed to account for and respond to, and which Russian policy-makers may not be able to abandon overtly as this would undercut their legitimacy. Thus the government is reluctant to adopt co-payments or private insurance as a means of legalising informal payments, not because of their dubious effectiveness but mostly because this would formalise the departure from the idea of ‘universal free health care’. By refusing to do so the government sustains the idea without the necessity to make difficult political decisions such as matching the package of services that the insured are entitled to with the resources available or shifting to more cost–effective forms of service provision, without having to upset the powerful interests in health care.