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Health System Financing EPI 5180. Health Policy and Financing. Policy objective – securing access for its citizens to some or all effective treatments. Financing objectives: Mobilizing funds for when they are needed Sharing risks Subsidizing access, where needed, for those with low income.
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Health Policy and Financing • Policy objective – securing access for its citizens to some or all effective treatments. • Financing objectives: • Mobilizing funds for when they are needed • Sharing risks • Subsidizing access, where needed, for those with low income
Models for financing health care 1. • Solidarity-based financing system • Taxation – funds raised from general government taxation of the population – direct taxes on income or wealth – indirect taxes such as sales tax • Under taxed based systems risks are shared • Provides significant subsidies from richer to poorer populations Countries using taxation as major source of funds • United Kingdom, Ireland, the Nordic countries, many countries in sub-Saharan Africa, and Canada
Models for financing health care 2. • Social Health Insurance (SHI) • Access to care is provided on the basis of need, and payment for insurance is based on income or the ability to pay • Insured persons pay a regular contribution based on income or wealth • Access to treatment or care is based on clinical need and not ability to pay • Contributions to the social health insurance fund are kept separate from other government-mandated taxes and charges • SHI finances care on behalf of the insured persons, and care is delivered by public and private health care providers
Models for financing health care 2b • SHI funds are formally separate from general taxation funds, and may be organized and managed by autonomous organizations • SHIs are often in two ways: • From direct payments by government directly to providers of care • Government payment of subscriptions for people unable to pay for themselves Countries that use SHI include: Germany, many other countries in Eastern and Central Europe, Japan, South Korea
Comparison between Tax-based and SHI • Separate structures for collecting and managing funds tend to give the system more transparency • The fact that members are insured and access to care is dependent on contributions to the fund, can give the patient the status of customer • To keep the system in balance it is necessary to be more explicit about the range of services to which the contributor is entitled
Community Prepayment Schemes (CPS) 1. • Financial and government institutions relatively weak • Attempt to mobilize and manage resources locally • Insurance at the community level or through firms or cooperatives • Community based schemes – provide members with the opportunity to give a flat payment in advance in return for free or reduced-cost health care if they get sick.
Community Prepayment Schemes (CPS)2. • CPS developed in poorer areas in poor countries • Risks facing individuals are not independent because some health risks facing individuals are not independent, because some health risks will occur at the same time for the whole local population (e.g. floods infectious disease) • Community health insurance schemes are very vulnerable because they are not efficient in risk sharing
Non-Solidarity Schemes • Private risk-based health insurance • Medical savings accounts • Out-of-pocket prepayment • Informal fees
Private risk-based health insurance (PHI)1. • Consumers choose insurance products covering a range of benefits and conditions, according to their willingness and ability to pay • Private insurance schemes set contributions on the basis of risk • The unemployed or people in dangerous jobs may find it difficult to afford private insurance and must fall back on publicly provided services
Private risk-based health insurance 2. • Argued that it is inequitable but inequities can be reduced if government regulation bans risk-rating practices • Private risk-based health insurance helps to mobilize resources for when they are needed, provides some sharing of risks, but does not redistribute resources from the rich to the poorer • Countries in which Private health insurance is used: • USA, Several Latin American countries and South Africa have relatively high enrollment in PHI.
Medical savings accounts • Funds are saved and protected so as to be available when needed • Compulsory saving system: • Individuals or families must set aside funds into a special account until the funds reach a defined level. They can spend this money only on approved forms of medical costs, and when money is spent they must save again until the reserves are replenished • Need for other mechanisms to cover the very high costs of serious illness
Out-of-Pocket Payments (OPPs) • Fees paid by the patient on use of health services • Include: User fees for public sector services • Payments to private providers at the point of contact Pros – can contribute to financial sustainability and referral patterns and reduce unnecessary use of services Cons – cost recovery potential of user fees is limited, particularly without retention of fees at the point of collection; equity suffers, especially through the failure of adequate exemption policies Countries: South and South East Asia, Africa, countries of Central and Eastern Europe, and the former Soviet Union
Informal fees • Informal or unofficial fees are payments – monetary or non-monetary made by an individual to a state health worker during official hours of work that do not form part of the workers official salary • Types: • Payments for doctors when state finances have collapsed • Culture of rent seeking and entitlements • Gift giving as a sign of respect • Informal fees affected by prevailing cultural values and conventions
Funding by NGO and development aid partners • World Health Organization (2007) reports that 19 countries were heavily reliant on external aid for over 30% of their aggregate health care spending • Regionally, Africa has the highest dependence on external funding.
Evaluating Health Financing - Challenges • What are the policy objectives against which performance is to be measured? • E.g. financial sustainability, equity, • The selection of indicators used to monitor and evaluate performance • Calculation of indicators
Criteria for Evaluation • Equity – fairness of distribution • Horizontal equity – the need for the equal treatment of equals • Vertical equity – the unequal but equitable treatment of unequals • Must decide equity of what – inputs, access, utilization, outcomes • Wagstaff, Van Doorslaer and Kutzin argue that equity in health financing relates to payment according to ability and treatment according to need
Efficiency Allocative efficiency – Asks are we doing the right thing? • Focus on prevention, focus on primary care, essential packages Technical efficiency – Asks what is the optimal combination of resources in anyone activity to produce maximum output or minimum costs
Recent trends • Trend towards greater accountability for government spending • Aid effectiveness • Greater links between planning and budgeting
Achieving value for Money (VFM) • The optimal us of resources to achieve the intended outcomes • “Assessing whether the level of results achieved represent good value for money against the costs incurred: moving from results to returns” (OECD, 2010)
VFM Questions • What are the goals of the health system? • What resources are required to meet the objectives and outcomes? • Are we using resources well to produce services? • Are we using services well to produce better health
Strategies for VFM 1. • Moving towards best practice in-order to a get efficiency gains; • Reinforcing priority setting; • Ensuring that different administrative levels understand their responsibility and accountabilities; • More balanced provider schemes, for instance between performance related pay and set wages;
Strategies for VFM 2. • Targeting spending on quality of care issues; • Better quality and pricing information to users so that they can make informed decisions; and • More stringent gate keeping in-order to reduce the number of consultations and referrals to more expensive levels of service delivery. • Using health technology assessment and other priority setting tools
Sustainability 1 • First, increases in health spending due to factors affecting demand for and supply of health services – among them, technological progress, demographic change and consumer expectations. • Second, resource constraints relating to government inability or unwillingness to generate sufficient resources to meet its health system obligations – an issue which takes on particular relevance in the current context of financial crisis. This is the issue of fiscal sustainability or fiscal balance.
Sustainability 2 • Third, health spending is rising as a proportion of gross domestic product (GDP). If this spending grows at a faster rate than spending in other parts of the economy, and therefore consumes an ever greater share of GDP, there is a concern that at some point it will eventually ‘crowd out’ expenditures on other goods and services that provide welfare gain. This is the issue of economic sustainability. The challenge in each case relates to the ability and willingness to pay for health care in the face of rising costs and resource constraints. (Thomson et. al 2009)
Financial sustainability and cost containment • Sustainability – Is the current approach to financing sustainable? Is the proportion of the government budget increasingly being consumed by the health sector • Cost containment – Is the rate of growth in total costs falling?
Critical functions of health financing • Revenue collection • The process by which the health system receives money from different sources, relating to generation of resources and accessibility of health services for the population • Revenue pooling • The accumulation and management of revenues from individuals to share risks • Purchasing • The process by which pooled contributions are used to pay providers to deliver specific health services
Mixed Financing Systems • No system in the world has a single system. • Most health systems are a blend of different financing mechanisms • A health system is made up of users, payers, providers and regulators • The financing of the system can be defined in terms of the relationship between the different actors
Financing Health Care in Canada • Federal System – 10 Provinces and 3 Territories • Federal Government is responsible for: • Setting and administering national principles for the health care system through the Canada Health Act • Assisting in the financing of provincial/territorial health care services through the Canada Health Act • Delivering health services to specific groups (e.g. First Nations and Inuit and Veterans) • Providing other health-related functions such as public health and health protection programs and health research
Financing Health Care in Canada • Federal Government provides direct expenditures on health to: • First Nations and Inuit People • Eligible Veterans, Refugee Protection Claimants • Inmates of Federal Penitentiaries • Serving Members of the Canadian Armed Forces and the Royal Canadian Mounted Police Equalization payments enable provinces to provide reasonably comparable levels of public services at reasonably comparable levels of taxation. The three territories receive additional federal support through Territorial Formula Financing to assist them in providing public services
Provinces and Territories • Provinces have jurisdiction over many public goods such as health care, education, welfare and intra-provincial transportation (Constitution Act, 1867) • Territories have no inherent jurisdiction and only have those powers delegated to them by the Federal Government
Table 1 Distribution of Public Sector Health Expenditure by Source of Finance, 1975 and 2009 Source: National Health Expenditures Database, Canadian Institute for Health Information Notes: * includes workers compensation boards and premiums to the Quebec Drug Insurance Fund
Health Care Expenditures • In 2009 public and private spending was an estimated $162.1 billion. In 2009 public sector spending was 129.1,136.9 in 2010, 141.0 billion in 2011. • Private sector 53.0 billion in 2009, 56.0 in 2010 and 59.5 in 2011. • 11.9 percent of Gross Domestic Product in Canada in 2009 • (In USA … 2009, 17.4 of Gross Domestic Product; Per capita • $ 8160) • Per capita health expenditure: $ 5,401 in 2009 and forecasts for 2010 and 2011 are expected to be $ 5, 654 and $ 5, 811 respectively
Table 2 Health Expenditure Summary by Province/Territory and Canada, 2011, Province/Territory Expenditure per capita Expenditure as % of GDP • Newfoundland and Labrador 6, 884 11.7 • Prince Edward Island 6,115 17.2 • Nova Scotia 6,288 15.6 • New Brunswick 6,358 15.6 • Quebec 5,261 12.4 • Ontario 5,792 11.9 • Manitoba 6,463 14.2 • Saskatchewan 6,421 10.1 • Alberta 6,570 8.6 • British Columbia 5,450 11.6 • Yukon Territories 8,996 12.4 • Northwest Territories 10,242 8.8 • Nunivak 11,929 21.3 • Canada 5,811 11.6 Source: National Health Expenditure Database, Canadian Institute for Health Information
Types of Health Care Funding in Canada 1. • Hospital Funding: • Line by line ….. Negotiating amounts for specific line items (or inputs) such as; inpatient nursing services, or medical surgical supplies (used in British Columbia and New Brunswick) Positive – funding can be directed towards policy greater degree of predictability Negative – reallocation among lines not easy, reduces flexibility
Types of Health Care Funding in Canada 2. • Ministerial Discretion: • Funding based on decisions made by the Provincial Minister of Health in response to a specific request by the hospital concerned (Manitoba, Nova Scotia, Prince Edward Island and Newfoundland) Positive – Subjective and flexible Negative – Can be myopic (political, inconsistent and not predictable)
Types of Health Care Funding in Canada 2. • Population-based: • Uses demographic information such as: age, gender, socio-economic status, and mortality rates to forecast the demand for hospital services • Alberta and Saskatchewan use population-based funding as their primary methods • British Columbia and New Brunswick use it in combination with line-by-line budget approach
Questions • What are the values that drive the Canadian Health Care System? • How do these values affect the financing of the health system? • Is the current method of financing the Canadian Health Care System sustainable? • How does politics, Provincial and Federal, affect the type and level of financing? • What role do you think the Federal Government should play? • What role does civil society play in financing?
References 1 • Carrin G. Health Systems Policy, Finance, and Organization • Health Care in Canada, Canada Institute for Health Information, 2008. • Raisa B. Deber, “Who wants to pay for health care” Canadian Medical Association Journal, July 11, 2000;163(1) • Robert G. Evans, Economic Myths and Political Realities – The Inequality Agenda and the Sustainability of Medicare, July 2007, University of British Columbia • Judith Maxwell et.al. Commission on the Future of Health Care in Canada Report on Citizens’ Dialogue on the Future of Health Care in Canada, June 2002 • Canadian Institute for Health Information , 2008. Health Care in Canada
References 2 • Sarah Thomson, Tom Foubister, Joseph Figueras, Joseph Kutzin, Govin Permanand, Lucie Bryndova, “ Addressing Financial Sustainability in Health Systems” World Health Organization, 2009. • OECD, “Health System Priorities When Money is Tight”, OECD Ministerial Meeting Paris, 7 – 8 October 2010 • Health Council of Canada, “Value for Money: Making Canadian Health Care Stronger’, February 2009 • Peter C. Smith “Measuring value for money in health care: concepts and tools”, Centre for Health Economics, University of York, September 2009.
