130423302 ICM7121 7th of May 2015

130423302 ICM7121 7th of May 2015

[WORD COUNT 3158]

You are a public health researcher in a country facing an acute ‘debt crisis’

which is requiring public budget cuts of more than 20%. Describe fiscal and

cost-containment strategies that are available to the government that might

help prevent negative impacts on health, while taking into consideration the

debt crisis. Describe how you would advise the Minster of Health to make his

/ her proposals to the Minister of Finance in a selected country of your choice.

You might to critically appraise [systematic process used to identify the strengths and weaknesses]

the policies introduced and provide your own recommendations building on the existing policies.

ESTONIA AND ITS ACUTE DEBT CRISIS OF 2008.

Country Background

Estonia is situated in the Baltic region of Northern Europe. Its neighbours are Finland in the North, Sweden in

the west separated by the Baltic Sea, Latvia in the south and Russia in the east.1 It is a Democratic

Parliamentary Republic with 15 counties.2 Its population is 1.3 million, the least populous country in the

European Union, Eurozone, NATO and Schengen area.3 Estonia is also a member of Organisation for Economic

Co-operation and Development [OECD].

Health System

The health system is predominantly financed through a flat-rate payroll tax. Hence equity is achieved as

tax redistribution of health care resources occurs from high-income to low-income groups and from the

hale and hearty to those in poor health. The paying population (51% of all covered people in 2011) covers

the expenses spent on health care for children, retirees and other non-contributing groups.4

The portion of total health financing from OOP payments was maximum in 2006 and total health care

financing became proportional as the progressive social tax counterbalanced the regressive OOP system. In

2007, financing was somewhat progressive, as homes with greater gross income paid more for health care.5

Compulsory health insurance is paid by employers on behalf of employees and self-employed people to the

EHIF via an earmarked payroll tax collected by the Estonian Tax and Customs Board known as the social tax

and covers both health and pension contributions (13% and 20%, respectively. Total health expenditure in

Estonia is comparatively low at 5.9% of GDP in 2011 (the EU average was 9.59%), and less than other Baltic

nations.4

Healthcare providers are private, municipal or governmental. Family physicians are either private entities or

employees of companies. Hospitals are either shared companies or foundations. Other service providers

130423302 ICM7121 7th of May 2015

130423302 ICM7121 7th of May 2015

available are dentists, surgical specialists, therapeutic specialists, psychiatrists, pharmacists, nurses and

midwives.4

Primary health care is based on family practitioners and they have a gatekeeping role regarding the

management of chronic diseases.6

There are several instances of the successful use of information technology solutions in the public sector;

medical records, digital images and prescriptions, e-ambulance, digital registration.5-6

Estonia Health Insurance Fund [EHIF] established in 1991. They have been autonomous since 2001. They built

reserves which were very useful during the crisis. State contributes to fund on behalf of the unemployed. They

are an active purchasing agency; contracting health care providers, paying for temporary sick leave benefits,

paying for health services and reimbursing pharmaceutical expenses.6

Population Demographics7

Age structure

0-14 years: 15.6% (male 101,018/female 95,204) 15-24 years: 11.2% (male 72,318/female 68,373) 25-54 years: 41.5% (male 250,244/female 271,450) 55-64 years: 13.2% (male 71,518/female 94,029) 65 years and over: 18.6% (male 77,492/female 156,275) (2014 est.)

Dependency ratios

Total dependency ratio: 52 % youth dependency ratio: 24.3 % elderly dependency ratio: 27.7 % potential support ratio: 3.6 (2014 est.)

Health Indices and Disease Burden

Life Expectancy at birth [2012] 76.58

Infant mortality [2012] 3.6/1000

130423302 ICM7121 7th of May 2015

130423302 ICM7121 7th of May 2015

Figure 1: Burden of diseases and ten causes of death in Estonia 20129

Debt crisis.

In 2008, Estonia was struck by the worst financial crisis since reclaiming their independence in 1991. Prior to

this year, between 2001 and 2007, Estonia had one of the quickest growing economies in Europe with annual

gross domestic product (GDP) growth rates ranging between 6.7 and 10.3%. Major export markets faded. A

severe fall in investment and the consumption, following the near collapse of the nation’s real estate market

was the major cause of the economic crisis in Estonia. In 2008, the economy shrunk by nearly 4% and this

negative growth continued into 2009 with an additional drastic fall of over 14%. Unemployment rose to 15.6%.

Juhan Parts, the Minister of Economic Affairs and Communication from 2007 to 2014 attributed their crisis

mainly to Estonia’s small open economy and a preceding rapid credit expansion that had increased domestic

consumption remarkably. At the centre of this economic crisis, the government’s main aim was to achieve the

Euro-zone criteria that were a prerequisite for Estonia adopting the Euro in January 2011.10-11

A number of austerity measures were taken. These included changes in valued added tax and excise taxes, as

well as measures targeted at the health sector, such as changes in the benefit basket and a decrease in prices

paid to healthcare providers. Nevertheless, the crisis provided opportunities to implement necessary but

unpopular reforms and significant stimulus money was directed to health infrastructure. The government

achieved the aim of restructuring health expenditure with reduced budgets while simultaneously not affecting

remarkably core health care services.10

This paper analyses the fiscal and cost-containment strategies employed by the government of Estonia during

this crisis. The first section discusses the fiscal strategies. The next section analyses cost containment strategies

employed. The framework used for the cost containment is that by Grumbach and Bodenheimer, which looks

at controlling healthcare costs, using either a ‘painful’ or ‘painless’ approach, the latter usually beneficial for

the population’s health. Bob Evans’ cost benefit curve is also discussed. The recommendations to the minister

conclude the paper.

130423302 ICM7121 7th of May 2015

130423302 ICM7121 7th of May 2015

Fiscal Strategies

Fiscal sustainability involves the ability of the government to fund government spending, meet its debt service

responsibilities and safeguard its overall solvency.12 Estonia has a conservative fiscal policy combined with a

liberal economic policy (for instance, tax-free reinvesting of profit), and a simple taxation system. Their policy

does not support deficit spending. Their objective is to spend less than what is generated in tax revenues.11 An

annual balanced budget ensures a favourable and steady environment for economic growth and the

government is committed to long-term fiscal sustainability. This is directly linked to the strong fluctuations in

GDP and unemployment described above.13

Their strategies could be looked at in the context of Heller’s framework. According to this framework, adapted

by Tandon et al and cited by Powell-Jackson et al, there are five ways of creating fiscal space in health: 1)

favourable macroeconomic conditions, specifically GDP increase and tax revenue; 2) prioritizing health within

the government budget; 3) taxes set aside specifically for health; 4) external grants for health; and 5) efficiency

improvements in the health sector.12 Estonia applied most strategies.

A major fiscal response to the crisis in Estonia was to cut expenditure.11 The Ministry of Social Affairs’ (MOSA)

health budget was cut by 24% in 2009. This was partly done through cutting administrative costs within the

ministry and the public health budgets. This has the potential to increase efficiency. These cuts also focused on

non-communicable diseases rather than communicable ones.14 This decision together with those of ploughing

back the accumulated reserves from Estonia’s health fund into health care and the focus on the vulnerable

population is in keeping with Heller’s framework. In the light of Grumbach and Bodenheimer’s framework of

cost containment, this is a painless mode of cost control as far as the population health is concerned.15

Other fiscal strategies carried out involved VAT and excise taxes on alcohol, tobacco and fuel. These generated

revenue for the government, from the perspective of Heller’s framework. It had the spinoff of causing improved

health behaviours among adult citizens. However the increased VAT had a negative impact on nutrition as good food

was costly in real and relative terms since people had little or no income in the face of unemployment.10

Estonia also had access to World Bank loans, European structural funds and grants which they used for capacity

building and development of infrastructure such as hospital renovations and e-health system expansion.5

Cost Containment Strategies

During the economic crisis, the government’s main objective was to achieve the Euro-zone criteria that were a

prerequisite for Estonia adopting the Euro in January 2011. The main decisions taken that affected the health sector

were to reform health expenditure in tandem with reduced budgets while at the same time having the least possible

effect on the financing of core health care services. This comes across as a government who prioritised the health of

the population. It is in keeping with Heller’s framework of creating fiscal space.12 It is also in keeping with the cost-

cost-containment framework used whereby painless modes of control in the framework refer to that which is in the

interest of public health. At the commencement of the crisis, the health sector, and the national health insurance

system particularly, was in a superior position compared to other public sectors. This was due to the fact that the

Estonian Health Insurance Fund (EHIF) had accumulated adequate reserves during previous years of rapid growth.

Furthermore, the health sector was more flexible in reacting to the crisis as most of the high impact alterations

made in this sector (mainly expenditure cuts) were in process before the crisis. Below is a summary of major policies

that were affected.14

130423302 ICM7121 7th of May 2015

130423302 ICM7121 7th of May 2015

Policies targeting financial contributions to the health system:

EU social funds were utilised in compensating for the decrease in the NCD budget. This does not fit into

Grumbach and Bodenheimer’s framework of cost containment but rather is a fiscal strategy as proposed by

Heller whereby health is prioritised by a government.12 A 15% co-insurance rate for nursing inpatient care was

begun in 2010. This was one of the policies proposed before the crisis but not implemented due to its

unpopularity.14

According to the cost containment framework of Grumbach and Bodenheimer [see figure 2 at end of

document], this is a ‘painful’ mode of cost containment. On the other hand, this method is beneficial as it

reduces the likelihood of consumer moral hazard, which is a situation whereby inappropriate use of care

happens. This strategy which is a form of co- payment/cost sharing discourages this behaviour.16 The demerit of

this strategy however is that the Estonia government need to envisage the possibility of reduced care access,

even when it is appropriate. Citizens, due to additional costs may delay accessing care and ultimately,

uncomplicated cases may become complicated. This would increase cost in the long run. It is also a strategy that

is disadvantageous to the economically deprived.15

Policies targeting volume and quality of care:

Estonian Health Insurance Fund EHIF reduced the benefits package. Initially, the structure for temporary sick

leave benefits was restructured and responsibilities shared with patients and employer. From July 2009, no

benefit was disbursed in the first three days of sickness or injury (formerly just the first day was omitted), the

employer disburses the benefit from the fourth to eighth day and the EHIF starts to pay the benefit from the

ninth day (previously it paid from the second day). This was a new cost-sharing method as the employer did not

take part beforehand. Furthermore, the rate of sickness benefit was decreased from 80% to 70% of the insured

individual’s income. The sickness benefit rate in the situation of looking after a child aged below twelve was

decreased from 100% to 80%. The full length of maternity leave was decreased from 154 days to 140 days.

During 2010, the measures on short-term sick leave benefits made savings of EEK1.1 billion (€71 million) as

compared to 2008.14 This money saved has been ploughed back into the healthcare and thus decreases in

access to care have not been as radical as might have been expected.10

Prior to 2009, insured persons aged 19 years and above could apply for the dental care benefit of EEK300

(€19.18), but since 2009, only insured persons over 63 years of age and persons qualified for work incapacity

pension or an old-age pension held this right. Savings made from these measures were €3.6 million in 2010

using 2008 as the reference year. Services as well were subject to some regulation through increases in official

waiting times: maximum waiting times for outpatient specialists’ visits increased in March 2009 from four to six

weeks. 14

According to the framework, measures that target the reduction in volume of services are usually painful

from a public health perspective.15 It is advantageous though as it has a direct and obvious effect on

reduction of costs. However due to the nature of cost containment, it tends to affect quality of healthcare

delivery.15

Policies affecting the costs of publicly financed health care

Ministry of Social Affairs MOSA altered the ministerial ruling on drug prescriptions to support active ingredient-

based prescribing and dispensing. The alteration did not change prescribing rules, instead it requires

pharmacies to make available to patients drugs with the lowest level of cost sharing and to note when patients

reject low-cost alternatives.14

This strategy is another painful mode of cost containment even though there is a consideration towards by

ensuring that cost sharing is at a minimal point. Cost sharing decreases the likelihood of inappropriate use of

care but some authors have suggested that it can be painless when used in moderate amounts, not affecting

130423302 ICM7121 7th of May 2015

130423302 ICM7121 7th of May 2015

low-income patients, and designed to encourage patients to use lower-cost alternate sources of care instead of

deterring use altogether.17-18

Additionally, in April 2010 the Health Insurance Act was modified to encompass the application of price

agreements and reference pricing to drugs in the lowest (50%) reimbursement category (which encompasses

effective drugs and many less cost-effective drugs). Price agreements formerly only pertained to medicines

reimbursed at higher rates.14

In September 2010, the EHIF began a yearly generic drug promotion campaign on television and billboards in

collaboration with MOSA, the State Medicines Agency and the Association of Family Physicians.14

In one more initiative in 2010, the EHIF Estonian Health Insurance Fund and MOSA Ministry of Social Affairs

began a new e-prescription system, which as at 2012 operated alongside paper prescribing.14 The anticipated

benefits from the health information system are yet to be understood and fully evaluated. More national

expansion and management initiatives need to be taken to attain set objectives.13 The novel system so far

renders active ingredient-based prescribing easier.14

On the other hand, based on the cost containment framework, the use of e-prescription is one way to control

providers’ behaviour under quantity controls and thence supplier induced demand. The demerits are however

opportunistic behaviour and increased transaction costs.15 “Opportunism is defined as a strategy involving guile,

intended to further self-interest.”19[pg. 132]

The other measures such as the campaign for generic drugs and low-cost medicines have the potential to

decrease healthcare costs. More importantly however is the fact that a reference pricing system keeps

medicines accessible to everyone.10

An exact reaction to the economic crisis was directed at payments to health care providers. In 2009, the EHIF

decreased the amount paid for health services by 6%. The aim was to balance the health insurance budget

without decreasing access to care. Prior to the crises, health service expenses (also prices) increased very

rapidly and consequently the 6% reduction was not thought as a huge financial shock for providers. Since 2011,

the costs of health services were cut by 5% with the exclusion of primary care where the decrease was lower

[3%].14

Based on the framework, retaining provision of primary care is in the interest of public health. The fact that the

measures carried out above were directed mostly at providers depicts a painless mode of cost containment.15

One more concept relevant to this discussion is the Bob Evans curve [See figure 3 below].From a society’s view

point, the cost of health care expenditures depends on purchasing better health for the populace. Therefore, it

is imperative to know if investing additional resources in health care buys better health outcomes for society. If

that is the case, it is important to also know what degree of the improvement in outcomes is relative to the

quantity of resources invested. Bob Evans curve shows a theoretic relationship between health care resource

input and health care outcomes. Originally, as health care resources build-up, the outcomes improve, but above

a certain point, the slope of the curve reduces, suggesting that increasing investments in health care return

marginal benefits. The curve can be seen as an aggregate cost–benefit curve for the running of a health care

system of Estonia. Regardless of where Estonia or any other country’s health system is sited on the curve, if

more money is spent better results are gotten, whether big or small. The application of this curve depends on

the advancement of various health systems. Therefore, developing countries that use immunizations tend to

get markedly improved health outcomes at relatively lower costs. They are therefore located on the steeper

portions of the curve. Countries however that introduce more advanced technologies like MRIs when they

already have CT scans are on the flatter portions of the curve as they add only marginal benefits, when

considered from a population health perspective.20

With respect to cost containment, and in the context of Estonia, if they had frozen health expenditure during

the crisis, they would have sacrificed better health outcomes and in terms of the curve, distance from points A

130423302 ICM7121 7th of May 2015

130423302 ICM7121 7th of May 2015

to B on the vertical axis. There is a point C outside the curve where less or same amount spent gives better

health outcomes. This shift usually requires better efficiency. This is for the benefit of the population’s health.

Estonia in this regard employed some measures. They strengthened their primary health care and its

gatekeeping function which is the management of chronic diseases. They gave priority to day and ambulatory

care. School health was fully managed by nurses. The e health system which had been launched in 2008

reduced GPs workload as the data used from it freed them from the assignment of disability.6 Other measures

included the review of the hospital master plan, the use of generic drugs and low-cost medicines; use of a

reference pricing system [keeps medicines accessible to everyone].6,10 Even more was the sparing of the cut to

the budget for communicable diseases and the use of accumulated reserves from the EHIF.6 These measures

would be regarded as those that shift the curve to point C from point A due to the fact that in the midst of the

crisis, health expenditure was not frozen but redirected. In better terms, there was an improvement in

efficiency.

Conclusion and Recommendations

Based on Estonia’s fiscal policies, their fundamentals and in the light of the debt crisis, it is recommended that the government should make cuts in administrative expenditure as these would make revenue available to be ploughed back into other priority areas of the health sector such as primary care, care of the vulnerable population and infectious disease management. This would potentially benefit population health without burdening them financially. The decision to implement VAT and excise duties is not commendable. In the light of unemployment rate, people have less purchasing power. People are less likely to purchase good food for sustenance and proper nutrition, which impacts positively on health. Strategies involving cost sharing may increase health responsibility but tends to be disadvantageous to the economically deprived. The implementation of electronic medicine would potentially help with increasing efficiency and controlling provider behaviour. This would reduce expenditure ultimately but being a relatively new project, the impacts would likely be seen in the long term. Regarding sick benefits, as the cuts are not marked and since they are being ploughed into other priority areas, it is a recommended approach. Finally, reviewing the hospital master plan, the utilisation of generic drugs and low-cost medicines and the use of a reference pricing system which makes medicines accessible to everyone is somewhat indicative of a government that prioritises population health in terms of equity, regardless of the crisis.

130423302 ICM7121 7th of May 2015

130423302 ICM7121 7th of May 2015

Figure 2: Cost containment framework15

Figure 3: A Theoretical Model of costs and health outcomes 15[pg. 90]

130423302 ICM7121 7th of May 2015

130423302 ICM7121 7th of May 2015

References

1. Arenduskeskus R. State portal : Estonian Republic [Internet]. Web.archive.org. 2011 [cited

5 May 2015]. Available from:

https://web.archive.org/web/20110721204649/http://www.eesti.ee/eng/riik/eesti_vabariik/

2. Lepp H. Estonia at a Glance - estonia.eu [Internet]. Estonia.eu. 2015 [cited 5 May 2015].

Available from: http://estonia.eu/about-estonia/country/estonia-at-a-glance.html

3. Eurboghana.eu. The Republic of Estonia, Capital Tallinn | eurboghana.eu [Internet]. 2015

[cited 5 May 2015]. Available from: http://eurboghana.eu/new/the-republic-of-estonia-

capital-tallinn/

4. PEVKUR H. Estonia Health Systems Review [Internet]. 1st ed. UN City: WHO; 2015

[cited 5 May 2015]. Available from: http://ee.euro.who.int/HiT-Estonia_2013.pdf

5. Thomson S, Võrk A, Habicht T, Rooväli, L, Evetovits T. Responding to the challenge of

financial sustainability in Estonia's health system [Internet]. 1st ed. Denmark: WHO; 2015

[cited 5 May 2015]. Available from: https://www.haigekassa.ee/uploads/userfiles/E93542.pdf

6. Pevkur H. Estonian Health Care System [Internet]. 1st ed. WHO/PAHO; 2015 [cited 5

May 2015]. Available from: http://www.paho.org/hq/index.php?option=com_docman&task...

7. Cia.gov. The World Factbook [Internet]. 2015 [cited 5 May 2015]. Available from:

https://www.cia.gov/library/publications/the-world-factbook/geos/en.html

8. Oecd-ilibrary.org. Life expectancy at birth, total population - Health: Key Tables from

OECD - OECD iLibrary [Internet]. 2015 [cited 5 May 2015]. Available from:

http://www.oecd-ilibrary.org/social-issues-migration-health/life-expectancy-at-birth-total-

population_20758480-table8

9. Who.int. Estonia WHO statistical profile [Internet]. 2015 [cited 5 May 2015]. Available

from: http://www.who.int/gho/countries/est.pdf?ua=1

10. Habicht J, van Ginneken E. Estonia’s health system in 2010: Improving performance

while recovering from a financial crisis [Internet]. 1st ed. London: WHO; 2010 [cited 6 May

2015]. Available from:

http://www.euro.who.int/__data/assets/pdf_file/0018/124371/Eurohealth-

_Vol16_No2_web.pdf

11. Parts J. Estonia and the European Debt Crisis [Internet]. 1st ed. Washington: Cato

Institute; 2013 [cited 6 May 2015]. Available from:

http://object.cato.org/sites/cato.org/files/serials/files/cato-journal/2013/5/cj33n2-8.pdf

12. Powell‐Jackson T, Hanson K, McIntyre D. Fiscal Space For Health: A Review Of The

Literature [Internet]. 1st ed. United Kingdom: DFID; 2012 [cited 6 May 2015]. Available

from: http://r4d.dfid.gov.uk/PDF/Outputs/ReSyst/Resyst-WP1.pdf

130423302 ICM7121 7th of May 2015

130423302 ICM7121 7th of May 2015

13. Lai T, Habicht T, Kahur K, Reinap M, Kiivet R, van Ginneken E. Health Systems in

Transition:Estonia Health system review [Internet]. 1st ed. UN City: WHO; 2013 [cited 6

May 2015]. Available from: http://ee.euro.who.int/HiT-Estonia_2013.pdf

14. Habicht T. Health Systems And The Financial Crisis: Estonia: Crisis Reforms And The

Road To Recovery [Internet]. 1st ed. Brussels: European Observatory on Health Systems and

Policies; 2012 [cited 6 May 2015]. Available from:

http://www.euro.who.int/__data/assets/pdf_file/0005/162959/Eurohealth_Vol-18_No-

1_web.pdf

15. Bodenheimer T, Grumbach K. Understanding health policy. New York: McGraw-Hill

Medical; 2009.

16. Mossialos E, Kutzin J, Figueras J, Dixon A. Funding health care: options for Europe

[Internet]. 1st ed. Denmark: European Observatory on Health Care Systems; 2002 [cited 7

May 2015]. Available from:

http://www.euro.who.int/__data/assets/pdf_file/0003/108831/Fhcpolbrief4.pdf

17. Selby J, Fireman B, Swain B. Effect of a Copayment on Use of the Emergency

Department in a Health Maintenance Organization. New England Journal of Medicine.

1996;334(10):635-642.

18. Magid D, Koepsell T, Every N, Martin J, Siscovick D, Wagner E et al. Absence of

Association between Insurance Copayments and Delays in Seeking Emergency Care among

Patients with Myocardial Infarction. New England Journal of Medicine. 1997;336(24):1722-

1729.

19. McPake B, Normand C. Health economics. London: Routledge; 2008.

20. Evans R. Strained mercy. Toronto: Butterworths; 1984.