Who Pays for Health Systen 103 pooling arrangements in developing countries. Although an improvement over out-of- pocket financing, their size and organizational capacity often threatens their financial sustainability(16, 17). Predominantly out-of-pocket financing represents the highest de gree of fragmentation. In such a case, each individual constitutes a pool and thus has to pay for his or her own health services Larger is better for pooling and purchasing. But economies of scale show diminishing returns and, beyond a critical size, marginal benefits may be negligible. The argument for large pools is therefore not an argument for single pools when multiple pools can exist without fragmentation, and when their size and financing mechanisms allow for adequate spreading of risk and subsidization of the poor. Health system policy with regard to pooling needs to focus on creating conditions for the development of the largest possible pooling arrangements. Where a particular country for the moment lacks the organizational and institutional capacity to have a single pool or large pools for all citizens, policy-makers and donors should try to create the enabling conditions for such pools. Meanwhile, policy-makers should promote pooling arrange ments whenever possible, as a transitional stage towards the future aggregation of pools Even small pools or pools for segments of the population are better than pure out-of pocket financing for all Opposing or neglecting such arrangements until the capacity ex- ists for the establishment of an effective single pool has two drawbacks. It deprives consumer of improved protection. And it may prevent the state from regulating such initiatives and teering them towards future large or single pool arrangements. Introducing regulations such as community rating(adjusting for the average risk of a group), portable employ- ment-based mum benefit packages(access to the same services in all pools), in addition to protecting members of the pools, may pave the way for larger pooling in the future or low income economies where the formal sector is small, this means promoting pooling at the community level. Communities'lack of trust in local pooling organization might be a limiting factor, but such initiatives offer an important opportunity for interna tional cooperation whereby donors act as guarantor for the community and help create the necessary organizational and institutional capacity For middle income developing coun- establishing a large pool or enacting regulation to specify a minimum size of pool for finan ial viability, as well as regulating pooling initiatives in a way that will facilitate consolida tion in the future However, competition among pools is not entirely bad. It can increase the responsive- ss of pooling organizations to their members and provide an incentive for innovation. It can also offer incentives for reducing costs( to increase market share and profits), for exam- ple through mergers, as in the reform of the quasi-public health insurance organizations (Obras Sociales) in Argentina in 1996. Lack of competition meant that the administrators were little concerned about high administrative costs and small benefits for their member as they had in any case a captive group of contributors. Competition and the resulting mergers, together with explicit subsidies for low-income beneficiaries, have allowed I bers of small pools to join larger pools and obtain better benefits for the same level of contributions Despite its potential benefits, pooling competition poses significant problems to health ystems, particularly in selection behaviour by both pooling organizations and consumers Mandatory participation(that is, all eligible members must join the pooling organization) gnificantly reduces the scope of selection behaviour but does not totally eliminate theWho Pays for Health Systems? 103 pooling arrangements in developing countries. Although an improvement over out-of￾pocket financing, their size and organizational capacity often threatens their financial sustainability (16, 17). Predominantly out-of-pocket financing represents the highest de￾gree of fragmentation. In such a case, each individual constitutes a pool and thus has to pay for his or her own health services. Larger is better for pooling and purchasing. But economies of scale show diminishing returns and, beyond a critical size, marginal benefits may be negligible. The argument for large pools is therefore not an argument for single pools when multiple pools can exist without fragmentation, and when their size and financing mechanisms allow for adequate spreading of risk and subsidization of the poor. Health system policy with regard to pooling needs to focus on creating conditions for the development of the largest possible pooling arrangements. Where a particular country for the moment lacks the organizational and institutional capacity to have a single pool or large pools for all citizens, policy-makers and donors should try to create the enabling conditions for such pools. Meanwhile, policy-makers should promote pooling arrange￾ments whenever possible, as a transitional stage towards the future aggregation of pools. Even small pools or pools for segments of the population are better than pure out-of￾pocket financing for all. Opposing or neglecting such arrangements until the capacity ex￾ists for the establishment of an effective single pool has two drawbacks. It deprives consumers of improved protection. And it may prevent the state from regulating such initiatives and steering them towards future large or single pool arrangements. Introducing regulations such as community rating (adjusting for the average risk of a group), portable employ￾ment-based pooling (insurance that a worker keeps when changing jobs) and equal mini￾mum benefit packages (access to the same services in all pools), in addition to protecting members of the pools, may pave the way for larger pooling in the future. For low income economies where the formal sector is small, this means promoting pooling at the community level. Communities’ lack of trust in local pooling organizations might be a limiting factor, but such initiatives offer an important opportunity for interna￾tional cooperation whereby donors act as guarantor for the community and help create the necessary organizational and institutional capacity. For middle income developing coun￾tries, this means both encouraging the creation of pools and, where possible, either directly establishing a large pool or enacting regulation to specify a minimum size of pool for finan￾cial viability, as well as regulating pooling initiatives in a way that will facilitate consolida￾tion in the future. However, competition among pools is not entirely bad. It can increase the responsive￾ness of pooling organizations to their members and provide an incentive for innovation. It can also offer incentives for reducing costs (to increase market share and profits), for exam￾ple through mergers, as in the reform of the quasi-public health insurance organizations (Obras Sociales) in Argentina in 1996. Lack of competition meant that the administrators were little concerned about high administrative costs and small benefits for their members, as they had in any case a captive group of contributors. Competition and the resulting mergers, together with explicit subsidies for low-income beneficiaries, have allowed mem￾bers of small pools to join larger pools and obtain better benefits for the same level of contributions. Despite its potential benefits, pooling competition poses significant problems to health systems, particularly in selection behaviour by both pooling organizations and consumers. Mandatory participation (that is, all eligible members must join the pooling organization) significantly reduces the scope of selection behaviour but does not totally eliminate the