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Health Financing in South Asia
South Asia Regional Forum on Health Financing
Maldives, June 2-4, 2010George SchieberWorld BankSouth Asia Region
Outline of Presentation
• Health Financing Functions, Objectives, and Models
• Revenue Collection and Tax Policy
• Fiscal Space and Macroeconomic Management
• Risk Pooling
• Purchasing
• Global Experiences
Health Financing Functions, Objectives, and Models
Countries Need to Focus on Health Financing Functions and Objectives, not Generic Models
Functions Objectives
Revenue collection
Pooling
Purchasing
raise sufficient and sustainablerevenues in an efficient and equitablemanner to provide individuals with a basic package of essential serviceswhich improves health outcomes and provides financial protection and consumer satisfaction
manage these revenues to equitably and efficiently create insurance pools
assure the purchase of health services in an allocatively and technically efficientmanner
Source: Gottret and Schieber, Health Financing Revisited, World Bank 2006
Financing Decisions Involve Difficult Trade-offs
Efficiency
EquitySustainability
Affordability
Political Criteria
Health Outcomes
Financial Protection
Consumer Satisfaction
Given Multiple Health Financing Goals, a Multi-Pillar Approach May be Appropriate
Source: Preker et al. (eds), Global Marketplace for Private Health Insurance, World Bank, 2010.
But Multi-Pillar Systems Can Be Quite Complex:Lots of Luck President Obama
The Benefit Package and Public Financing of Certain Health Services are Key
Financing Functions
•Collection•Pooling
•Purchasing
SustainableEquitableEfficient
Affordable
Health Outcomes
Financial Protection
Consumer Satisfaction
Basic BenefitPackage
•Breadth•Scope •Depth
Public BBP Criteria
•Cost-effectiveness•Externalities•Public Goods•Catastrophic Costs•Poverty•Equity•Rule of rescue•Political
Source: Musgrove 1996, HFR 2006, WHO 2000, World Bank, Kutzin forthcoming
Cost Effectiveness is One Important CriterionHow much health will a million dollars buy?
Service or Intervention
Cost Per DALY
(US$)
Estimated DALYs
Averted Per
Million US$ Spent
Expanding immunization coverage
with standard child vaccines 2-20 50,000-500,000
Taxing tobacco products 3-50 24,000-330,000
Performing coronary artery bypass
surgery in high risk cases** >25,000 <40
Using antiretroviral therapy that
achieves high adherence for a large
percentage of patients 350-500 2,000-3,000
Detecting and treating cervical cancer 15-50 20,000-60,000
Source: Disease Control Priorities in Developing Countries, second edition, 2006, Tables 1.1- 1.4
Most SA Countries for Their Income and Health Spending have Lower Disease Burdens Per Capita than Comparators
Afghanistan
Bangladesh
India
Maldives
Pakistan
Nepal
Sri LankaBhutan
Be
tter
than
avera
ge
Wo
rse
tha
na
vera
ge
Worse than averageBetter than average
Pe
rform
an
ce r
ela
tive
to h
ea
lth s
pen
din
g p
er
capita
Performance relative to income per capita
Source: World Development Indicators (2010), WHO (2010), & Royal Monetary Authority (2009)Note: both axes log scale
DALYs per 100,000 Relative to Income and Spending, 2004
But Performance on Specific Health Outcomes is More Mixed
Infant Mortality Maternal Mortality
Bangladesh
Pakistan
Bhutan
Afghanistan
India
Maldives
Nepal
Sri Lanka
Be
tter
than
avera
ge
Wors
e tha
n a
ve
rag
e
Worse than averageBetter than average
Pe
rfo
rman
ce r
ela
tive
to h
ealth
sp
en
din
g
Performance relative to income
Global Comparisons of Infant Mortalityversus Income and Total Health Spending, 2008
BangladeshPakistan
Sri Lanka
India
NepalBhutan
Afghanistan
Maldives
Be
tter
than
avera
ge
Wo
rse
tha
n a
ve
rag
e
Worse than averageBetter than average
Pe
rform
an
ce
rela
tive
to h
ea
lth
sp
en
din
g p
er
ca
pita
Performance relative to income per capita
Source: World Development Indicators, WHO, & Royal Monetary Authority, 2009Note: both axes log scale
Global Comparisons of Maternal Mortality Relative to Income and Spending, 2005
Although Most Countries Perform Better than Comparators for Life Expectancy
Afghanistan
Bhutan
India
Maldives
NepalSri Lanka
BangladeshPakistan
Wors
e tha
n a
ve
rag
eB
etter
than
avera
ge
Better than averageWorse than average
Pe
rform
an
ce
rela
tive
to h
ea
lth
sp
en
din
g p
er
ca
pita
Performance relative to income per capita
Source: World Development Indicators (2010), WHO (2010), & Royal Monetary Authority (2009)Note: both axes log scale
Global Comparisons of Life Expectancy Relative to Income and Spending, 2008
Outcomes are Dependent on Education
India
Nepal
Pakistan
Bangladesh
Sri Lanka Maldives
Bhutan
02
04
06
08
01
00
Ad
ult fem
ale
lite
racy(%
fem
ale
s a
ge 1
5 a
nd
ab
ove)
100 250 1000 2500 10000 25000GDP per capita, US$
Sources: WDI, WHONote: x-axis log scaleFemale literacy rate and GDP per capita data are for latest year available
Adult female literacy versus Income (2000-2008)
Financial Protection and Equity are Also Important BBP ‘Outcome’ Criteria and High SA Levels of OOP Imply High Levels of Impoverishment
.01
.03
.1.3
13
815
% o
f household
s w
ith c
ata
str
ophic
expenditure
(lo
garith
m)
3 5 8 14 22 37 61 100
out-of-pocket payment in total health expenditure % (logarithm)
OECD others
Where out-of-pocket
spending is less than 15%
of total health spending,
few households face
catastrophic payments
Source: Kutzin et al., Implementing Health Financing Reform: Lessons from Countries in Transition, WHO, forthcoming.
Financial Protection and Equity Need to be Improved in the Region
Catastrophic Payments Public Hospital Subsidies
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
Mal
aysi
a
(19
99
)
Tai
wan
(2
000
)
Ind
on
esia
(20
06
)
Th
aila
nd
(20
02
)
Ho
ng K
on
g
(20
00
)
Sri
Lan
ka
(19
97
)
Ph
ilip
pin
es
(19
99
)
Ind
on
esia
(20
01
)
Ko
rea
(20
00
)
Nep
al (
19
96
)
Ind
ia (
20
00
)
Ch
ina
(20
00
)
Ban
gla
des
h
(20
00
)
Vie
tnam
(19
98
)
% o
f h
ou
seh
old
s ex
ceed
ing
th
resh
old
.of non-food exp 25% .total exp 10%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
Shan
xi p
rov
ince (C
hin
a) 20
03
Heilo
ngjian
g (C
hin
a) 2003
Zhejian
g (C
hin
a) 2003
Gan
su (C
hin
a) 2003
Indonesia 2
001
Indonesia 2
006
India 1
996
Mongo
lia*
Ban
glad
esh 2
000
Vietn
am 2
003
Malay
sia 1996
Thailan
d 2
002
Sri L
anka 2
004
Ho
ng K
ong 2
002
Poore
st q
uin
tile
sh
are
of
sub
sid
y
Source: Van Doorslaer et al., 2006, 2007
Poorest quintile share of public hospital inpatient subsidies
Percent of households exceeding the share
Summary of Public Policy Challenges for Designing Benefit Packages and an Appropriate Public Financing Role
1. How to prioritize? What criteria should be used?
2. How to reach consensus (with medical profession, with members of society, with interest groups)?
3. What is done with services not included in the package?
4. How to go through the transition process?
5. How to provide the package?
6. What’s the cost of the package?
7. What will be the health impact of the package?
8. How to finance the basic package?
9. Who is the beneficiary of public subsidies?
10. How are public subsidies channeled?
Source: WBI
Revenue Pooling Resource AllocationCollection or Purchasing (RAP)
Financing Needs to Deal with Revenue Collection, Risk Pooling, Management and PaymentP
rivate
Pu
bli
c
Taxes
Public Charges/Resource Sales
Mandates
Grants
Loans
PrivateInsurance
Communities
Out-of-Pocket
PublicProviders
PrivateProviders
Service Provision
GovernmentAgency
Social Insurance orSickness Funds
Private Insurance or Community-basedOrganizations
Employers
IndividualsAnd Households
Source: World Bank
NHS Systems
Strengths
– Pools risks for whole population
– Relies on many different revenue sources
– Single centralized governance system has the potential for administrative efficiency and cost control
Weaknesses
– Unstable funding due to nuances of annual budget process
– Often disproportionately benefits the rich
– Potentially inefficient due to lack of incentives and effective public sector management
Systems financed through general revenues, covering whole population, care provided through public providers
Source: Gottret and Schieber, Health Financing Revisited, World Bank 2006
Social/Mandatory Health Insurance
Strengths
• Additional health revenue source• As a „benefit‟ tax, there may be
more „willingness to pay‟• Removes financing from annual
general government appropriations process
• Generally provides covered population with access to a broad package of services
• Often has strong support from population
• Can effectively redistribute between high and low risk and high and low income groups in the covered population
• Often serves as the basis for the expansion to universal coverage
Weaknesses
• Poor are often excluded unless subsidized by government
• Payroll contributions can reduce competitiveness and lead to higher unemployment
• Can be complex and expensive to manage, which is particularly problematic for LICs and some MICs
• Governance and accountability can be problematic
• Can lead to cost escalation unless effective contracting mechanisms are in place
• Often provides poor coverage for preventive services and chronic conditions
• Often needs to be subsidized from general revenues
Systems with publicly mandated coverage for designated groups, financed through payroll contributions, semi-autonomous administration, care provided
through own, public, or private facilities
Source: Gottret and Schieber, World Bank 2006
Community-Based Health Insurance
Strengths
• Community-run and not-for-profit• Membership is voluntary• Promotes pre-payment • Plays a role in mobilizing additional
resources, providing access and financial protection in LICs
• Risk sharing is usually from the well to the sick
• If premiums are based on income, there can also be risk sharing from the better off to the poor
• CBHI can be a helpful complement but is not a substitute for NHS or SHI systems
Weaknesses
• Heterogeneous in terms of populations covered, regulation, and benefits provided
• Providing access and financial protection are limited due to the small size of most schemes
• The financial sustainability of most schemes is questionable
• CBHI schemes generally do not reach the very poor
• Their impacts on care delivery are quite limited
• Should be encouraged only where more comprehensive health financing arrangements cannot be implemented on a large scale
Not-for-profit prepayment plans for health care, with community control and voluntary membership, care generally provided
through NGO or private facilities
Source: Gottret and Schieber, World Bank 2006
Voluntary Health Insurance
Strengths
• As a prepayment and risk pooling mechanism is generally preferable to out of pocket expenditure
• May increase financial protection and access to health services for those able to pay
• When an “active purchasing” function is present it may also encourage better quality and cost-efficiency of health care providers
Weaknesses
• Associated with high administrative costs
• Not effective in reducing cost pressures on public health financing systems
• May be inequitable without public intervention either to subsidize premiums or regulate insurance content and price
• Has the potential to divert resources and support from mandated health financing mechanisms
• Applicability in LICs and MICs requires well developed financial markets and strong regulatory capacity
Financed through private voluntary contributions to for- and non-profit insurance organizations, care provided in private and public facilities
Source: Gottret and Schieber, World Bank 2006
Evidence on User Fees is Mixed
Strengths
– Generate additional revenue with which to improve health care quality
– Increase demand for services owing to the improvement in quality
– May reduce out-of-pocket and other costs, even for the poor, by substituting public services sold at relatively modest fees for higher-priced and less accessible private services
– Promote more efficient consumption patterns by reducing spurious demand and encouraging the use of cost-effective health services
– Encourage patients to exert their right to obtain good quality services and make health workers more accountable to patients
– When combined with a system of waivers and exemptions, serve as an instrument to target public subsidies to the poor and to reduce the leakage of subsidies to the non-poor
Weaknesses
– Are rarely used to achieve significant improvements in quality of care, either because their revenue generating potential is marginal or because fee revenue is not used to finance quality gains
– Do not curtail spurious demand because in poor countries there is a lack, not an excess, of demand
– Fail to promote cost-effective demand patterns because the government health system fails to make cost-effective services available to users
– Hurt access by the poor, and thus harm equity, because appropriate waivers and exemption systems are seldom implemented; where they are, the poor get discriminated against with lower quality treatment
Fees for publicly provided services
Source: Gottret and Schieber, World Bank 2006
Revenue Collection and Tax Policy
Revenues Can Come From Many Sources
Source: Preker et al. (eds), Global Marketplace for Private Health Insurance, World Bank, 2010, Chapter 2.
There are Numerous Types of Taxes
Source: : Allan, The Theory of Taxation,1971
Tax System Criteria
• Revenue adequacy and stability: the tax should raise a significant amount of revenue, be relatively stable, and be likely to grow over time
• Efficiency: minimizes economic distortions• Equity: should be fair in terms of the treatment of
different income groups• Ease of collection: should be simple to administer• Political acceptability: transparency, broad diffusion,
and clarity about the uses of the tax promote acceptability
Source: IMF
Domestic Resource Mobilization is Much More Limited in MICs and LICs
Regions
Total Revenue
as % of GDP
Tax Revenue
as % of GDP
Social Security
Taxes as % of
GDP
Early 2000s
Americas 20.0 16.3 2.3
Sub-Saharan Africa 19.7 15.9 0.3
Central Europe, Baltics, Russia & Other
Former Soviet Republics 26.7 23.4 8.1
Middle East & North Africa 26.2 17.1 0.8
Asia & Pacific 16.6 13.2 0.5
Small Islands (Pop. < 1 million) 32.0 24.5 2.8
Low-income countries 17.7 14.5 0.7
Low middle-income countries 21.4 16.3 1.4
Upper middle-income countries 26.9 21.9 4.3
High income Countries 31.9 26.5 7.2
Source: IMF
SA Revenue Effort is Generally Low
Afghanistan
IndiaSri Lanka
Maldives
NepalPakistan
Bangladesh
Bhutan
10
20
30
40
50
60
Re
ve
nu
e s
ha
re o
f G
DP
(%
)
100 250 1000 10000 25000GDP per capita (current US$)
Sources: WDI; WHONote: both axes log scaleData are for latest available year 2000-2008
Revenue share of GDP versus GDP per capita
Note: Revenue figures exclude grants
Financing Sources Differ Widely by Region(Share of Tax and Social Insurance Revenues in Sources of Total Health Financing,
LMIC Regional Averages 2005)
Social Security and General Government Expenditure on Health- LMIC Regional
Averages (2005)
EAP
AFR
MNA
LCR
SAR
ECA
0%
5%
10%
15%
20%
25%
30%
35%
40%
0% 10% 20% 30% 40% 50% 60% 70%
General Government Expenditure on Health (less Social Security) as % THE
So
cia
l S
ec
uri
ty E
xp
en
dit
ure
s o
n H
ea
lth
as
% o
f T
HE
Source: Langenbrunner et al., Health Financing Note East Asia and Pacific Region, forthcoming.
Many Different Types of Revenues are Used to Finance Health in ECA
(Sources of Health Financing by ECA Country, 2004)
ALAMAZ BY
BA
BG
HR
CZEE
GE
HU
KZ
KG
LV
LT
PL
MD
RO
RU
YUSK
SI
TJ
MK
UAUZ0
10
20
30
40
50
60
70
80
90
100
0 10 20 30 40 50 60 70 80 90 100
General revenue for health % total health expenditure
Dedi
cate
d ta
xes
for h
ealth
% to
tal h
ealth
exp
endi
ture
Predominantly
general revenue
Predominantly
dedicated tax
Source: Kutzin et al., 2010, forthcoming; WHO (2008); Health Systems in Transition reviews, national NHA reports, Health Compulsory Insurance
State Agency Latvia (2005),
Murauskienė (2007), Voncina (2007), World Bank (2006a, 2006b, 2008), World Bank (2005).
Note: aFor Latvia, 2003 data was used to illustrate collection mechanism in place until January 2004.
•“Dedicated tax” refers to both payroll taxes earmarked for health (mandated contributions by employers or employees, the self-employed,
•pensioners and the unemployed, and other vulnerable groups to social security, explicitly labeled to health) and income tax revenues earmarked for
•health. “General revenue allocation” includes funding allocated through the general budget for programs (such as public health programs) as well as
• transfers from government to social security institutions or national health insurance schemes, which are labeled to health, e.g., on behalf of
•vulnerable groups.
Key (country abbreviations based on internet domain names): AL: Albania, AM: Armenia, AZ: Azerbaijan, BA: Bosnia-Herzegovina, BG:
Bulgaria,
BY: Belarus, CZ: Czech Rep, EE: Estonia, GE: Georgia, HR: Croatia, HU: Hungary, KZ: Kazakhstan, KG: Kyrgyzstan, LT: Lithuania, LV: Latvia,
MD: Moldova, MK: Macedonia, PL: Poland, RO: Romania, RU: Russia, YU: Serbia and Montenegro, SK: Slovakia, SI: Slovenia, TJ: Tajikistan,
UA: Ukraine, UZ: Uzbekistan.
And in EAP and SA Countries(Share of Tax and Social Insurance Revenues in Total Health Financing , EAP: 2005, SA: 2008)
0%
5%
10%
15%
20%
25%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
So
cia
l Secu
rity
Exp
en
dit
ure
s o
n H
ealt
h a
s %
of T
HE
Government Expenditure on Health (less Social Security) as % of THE
Social Security and General Government Expenditure on Health-EAP Countries
TLS
CHNMNG
IDN
PHL
FJI PNGMYS
KHM
VUT
LAO
VNM
THA
WSM
TON SLB
Predominantlytax financed
Predominantlysocial insurancefinanced
Source: Langenbrunner et al., Health Financing Note East Asia and Pacific Region, World Bank, forthcoming.Modified by the addition of SA countries in red with 2008 NHA data.
AF
*BG NE
* *BH
*
IN*
MA*PK
*SR
*
Fiscal Space and Macroeconomic Management
What is Fiscal Space?
• Overall fiscal space (IMF definition):
Fiscal space refers to the availability of budgetary room that allows a government to provide resources for a desired purpose without any prejudice to the sustainability of a government’s financial position.
Definition does not specify fiscal space for what, e.g., there is no sector specification – generally presumed to be for some “meritorious” purpose, or for financing public investments for aiding economic growth.
• Strong link to the notion of financial sustainability.
Financial sustainability is the capacity of governments, in future, to finance desired expenditure programs, service its debts, and ensure its solvency.
Source: Heller 2006, Tandon et Cashin, Assessing Public Expenditure on Health From a Fiscal Perspective , World Bank, forthcoming.
Sources of Fiscal Space
Grants
Revenue
Borrowing
Efficiency1
2
3
4
5
6
7
Overall fiscal space(increase as % of GDP)
Can be visualized as a diamond plot with theaxes representing the amounts from different sources
Health Sector-Specific Sources of Fiscal Space
• Earmarked taxes may be an option
Often criticized from a public finance perspective, but tend to be a popular option used by countries – some argue earmarking is important when governance is weak.
Thailand has employed “sin taxes” to fund health promotion. Ghana has 2.5% VAT for health insurance fund. India employs an education cess. Bhutan has a 1% payroll tax but the funds don’t flow to the MOF, not a specific health
funding source. Thailand, Australia, the US, and Korea, are examples of countries that have successfully
implemented earmarked taxes on tobacco and used the revenues for public health purposes.
• Mandating social health insurance may be an option
If the pool of premium-paying population is large, this may be a means to raise public funds for health.
Difficult option to implement in countries with large informal sectors.
Source: Tandon and Cashin , forthcoming
SA Future Growth Situation is Reasonable
Bangladesh
Bhutan
India
Sri Lanka
Maldives
Nepal
Pakistan
-50
510
15
Ann
ual G
DP
gro
wth
rat
e (%
)
2003 2005 2007 2009 2011 2013 2015Year
Source: IMF World Economic OutlookNote: Projections for Nepal start in 2009
Annual economic growth ratesActual: 2004-2008; Projected: 2009-2014
But Revenue Effort is Not Projected to Increase in Most SA Countries
(Revenues as Share of GDP)
0
10
20
30
40
50
60
circa 2008
circa 2014
Source: IMF Article IV Consultation Reports 2009, 2010. Figures are revenues plus grants.
External Debt will Still Be Problematic for a Number of SA Countries
(External Debt as Share of GDP)
0
20
40
60
80
100
120
cira 2008
circa 2014
Source: IMF Article IV Consultation Reports, 2009, 2010.
Can SA Countries Count on Continued External Assistance?(External Assistance as a Share of Total Health Spending)
0
5
10
15
20
25
30
35
1995
2000
2005
2008
Source: WHO, NHA 2010
Can Health Spending be Reprioritized as Some SA Countries Give a Lower Priority to Health than Other Public Programs?
Afghanistan
Afghanistan
Bangladesh
Bangladesh
Bhutan
Bhutan
India
India
Sri Lanka
Sri Lanka
Maldives
Maldives
Nepal
Nepal
Pakistan
PakistanPublic expenditure on health
Overall government expenditure
25
10
30
50
Exp
en
ditu
re s
ha
re o
f G
DP
(%
)
10 20 30 40 50 60Revenue share of GDP (%)
Source: WDINote: both axes log scaleData for latest available year 2000-2008
Government revenues and expenditures, 2000-2008
A Fiscal Space Analysis for Rajasthan, India
Fiscal Space Source Key Information Prospects for Fiscal
Space
Macroeconomic
conditions
2.1% GSDP growth rate
Elasticity of state health spending to
GSDP=0.83
Global financial crisis reducing revenues
Pressure to keep deficit low
Limited
Re-prioritization of health
in the government budget
4.1% share of health in state budget
Large share of state budget non-
discretionary
Limited
Health sector-specific
resources
Inter-fiscal transfers (other than NRHM)
have been de-linked from health spending
priorities
Prices on alcohol and tobacco products are
already high, and consumption is
concentrated among the poor.
As much as 92% of the labor force is
informal, and 42% of the population lives
on a $1 a day or less, which would not
provide a sufficient base for a contributory
health insurance system.
User charges from the top quintile of the
population alone could generate significant
resources
Limited to Moderate
Health sector-specific
grants and foreign aid
The size of the country makes the
magnitude of aid required for impact
impractical.
Weak absorptive capacity
Limited
Efficiency gains 60% of NRHM funds tied to 15 different
fragmented programs
70%of state health budgets are consumed
by salaries and non-discretionary
Absenteeism in public sector primary health
centers 40-50%
Good
Source: Tandon and Cashin, Assessing Public Expenditure on Health From a Fiscal Perspective, World Bank, forthcoming
Risk Pooling
In Practice, Countries Use Different
Organizational Arrangements
for Risk Pooling
MOH/NHSInsurance
schemes
Community
risk-
sharing
arrangements
Social
insurance
Multiple
competing privateinsurance
Single Multiple IndemnityManaged
care
Source: Baeza, World Bank
Risk Pooling and Prepayment • Risk pooling enables the spreading of risks over a large number of people as
large unpredictable risks at the individual level become predictable when averaged over a large number of individuals
• Risk pooling enables the averaging of health risks over all pool members and provides the opportunity for redistribution among high and low risk pool members
• This averaging of risks coupled with prepayment of these ‘average’ treatment costs are the basis of ‘insurance’
• ‘Insurance’ enables pool members to face a predictable upfront small average payment , rather than a large unpredictable payment
• Thus ‘insurance’ provides ways to finance risks equitably and efficiently across members of varying risk profiles and income levels:
– In risk rated private insurance, the prepaid premium reflects the average predicted risk of pool members, thus enabling the sharing of risks among high and low risk individuals in the pool
– In a public system, pre-payment through public revenues further allows the separation of payments from expected medical risks and individuals’ abilities to pay, and thus enables redistribution from high to low income individuals as well as from low to high risk individuals
Source: World Bank
What do We Mean by Risk Pooling?
AgeHealth risk
Cross-subsidy from
low-risk to high-risk
(risk subsidy)
Low
risk
High
risk
Income
Cross-subsidy from
rich to poor
(equity subsidy)
PoorRich
Cross subsidy from
productive to non-productive
part of the life cycle
Produ
ctive
Non-
produc
tive
Source: Baeza, World Bank
Insurance Can Be Complex• Adverse selection occurs when
sicker than average individuals enroll in competing public or private health insurance plans
• This can destabilize insurance markets through premium spirals if healthier individuals disenroll
• Insurers react by trying to screen out such high risk individuals by:
– requiring medical exams
– examining claims history
– having waiting periods
– excluding pre-existing conditions from coverage
– refusing insurance coverage
• These instabilities can be offset by:
– regulation of insurers
– marketing insurance to groups formed for other purposes (e.g. employment)
– having a mandatory public
insurance program
Source: World Bank
Insurance Encourages Overuse of Services
• When individuals have free access to services, they tend to overuse services
• This phenomenon is known as moral hazard
• It is present in both public and private insurance
• Insurance design features to mitigate moral hazard include:
– cost sharing
– limits on benefits
– frequent renewability
– utilization management
Source: World Bank
Do Insurance Market Instabilities Necessitate Public Financing?
Public financing can:
– pool risks over the entire population
– eliminate adverse selection and medical underwriting problems
– still face cost problems due to moral hazard
Private insurance can:
– segment health risks by underwriting groups
– preclude economic losses from coercive taxes
– allow for greater consumer choice
Source: World Bank
Purchasing
Why is Purchasing Important?
• Purchasers need to assure access to covered services and financial protection for their beneficiaries, and providers have to be willing to supply them.
• Purchasing has both supply and demand side dimensions.• Purchasing is complex because of the tradeoffs among cost,
quality, and access.• Efficiency and equity of purchasing determines health
outcomes, levels of financial protection, overall health costs, and fiscal sustainability.
• Efficiency gains are a de facto source of revenue generation.• Government intervention/oversight is needed due to market
failures in health and accountability to their citizens and donors.
Source: World Bank
A Critical Question is: Who Bears Risk?
PROVIDER
PAYER
Fee-For Service Capitation
Source: Langenbrunner 2007
Who Bears the Risk Depends on How ProvidersAre Paid
• Unit of payment:– individual service– per visit/encounter– per day– per admission– per episode of illness– all (or a defined set of services) for a provider for a fixed period of time (i.e., salary or
global budget)– all (or a defined set of) services for an individual for a fixed period of time (i.e. full or
partial capitation)– based on results (P4P)
• Level of payment– providers costs– providers charges– administratively set by payor– negotiated– competitive bidding
Source: World Bank
And the Organizational Features of the Health Care System
Fee-for-
Service
Global Case
Rates
Global
Payment
Co
nti
nu
um
of
Paym
ent
Bu
nd
ling
Continuum of Organization
Small practices;
unrelated
hospitals
Independent Practice
Associations; Physician
Hospital Organizations
Fully integrated
delivery system
Co
ntin
uu
m o
f Rew
ards fo
rH
igh Perfo
rman
ce
Outcome
measures; large
% of total
payment
Simple process and
structure measures;
small % of total
payment
Blended
FFS/Care
Management fee
Care
coordination and
intermediate
outcome
measures;
moderate % of
total paymentMore Feasible
Source: Adapted from A. Shih, K. Davis, S. Schoenbaum, A. Gauthier, R. Nuzum, and D. McCarthy, Organizing the U.S. Health Care Delivery System for High Performance, The Commonwealth Fund, August 2008.
Less Feasible
Checklist for New Payment Systems Means Getting the Incentives ‘Right’ to Deal With Cost, Access, and Quality
• Enable and encourage providers to deliver accepted procedures of care to patients in a high quality, efficient, and patient-centered manner
• Support and encourage providers to invest, innovate, and take other actions that lead to improvements in efficiency, quality, and patient outcomes and/or reduced costs
• Not encourage or reward overtreatment, use of unnecessarily expensive services, unnecessary hospitalization or rehospitalization, provision of services with poor patient outcomes, inefficient service delivery, or choices about preference-sensitive services that are not compatible with patient desires
• Not reward providers for under treatment of patients or for the exclusion of patients with serious conditions or multiple risk factors
• Not reward provider errors or adverse events• Make providers responsible for quality and costs within their control, but not for quality and costs
outside their control• Support and encourage coordination of care among multiple providers, and should discourage
providers from shifting costs to other providers without explicit agreements to do so• Encourage patient choices that improve adherence to recommended care processes, improve
outcomes, and reduce costs of care• Not reward short-term cost reductions at the expense of longer-term cost reductions and should
not increase indirect costs in order to reduce direct costs• Not encourage providers to reduce costs for one purchaser by increasing costs for other purchasers,
unless the changes bring payments more in line with costs for both/all payers• Minimize the administrative costs for providers in complying with the payment system rules• Multiple payers should align standards and methods of payment to avoid unnecessary differences
in incentives for providers.
Source: Miller as cited in Langenbrunner et al. 2009
Key Purchasing Messages
1. There is no ‘right’ method
2. Purchasing systems must be tailored to the institutional realities of each health system encompassing both the demand and supply sides
3. Policy-makers need to be concerned about effects across different governmental levels, provider types, different payors (i.e., public, private HI, OOP) as well as overall health spending
4. Policy-makers must monitor the effects of alternative purchasing systems on cost, access, and quality – MIS is critical
Source: World Bank
Global Experiences
LIC Policy Challenges
• What is the role of the public sector in health financing?
• How can sufficient revenues be raised to afford a basic package of essential services?
• What can the Government do to provide financial protection against the impoverishing effects of catastrophic illness costs -- Is pooling of resources possible?
• What is the role of user fees – Should existing user fees be abolished?
Source: Gottret and Schieber 2006
LIC Policy Challenges (2)
• Are annual health plans and budgets couched in a results-based framework with appropriate M&E indicators?
• How can countries assure harmonization of donor procedures and alignment with national priorities and processes?
• How can absorptive capacity be improved?• What are the most effective methods for creating
fiscal space, dealing with cross-sectoral and macroeconomic tradeoffs, and aligning health policies with PRSPs and MTEFs?
Challenges in Middle-Income Countries
• Achieve universal coverage• Improve financial protection • Increase health system efficiency
In the context of:
• High out-of-pocket payments• Limited revenue-raising capacity• Fragmented financing systems• Inefficient purchasing arrangements
Source: Gottret and Schieber 2006
‘Good Practice’ Health Coverage Expansion Reforms
• Chile, Columbia, Costa Rica, Estonia, Kyrgyz Republic, Sri Lanka, Thailand, Tunisia, and Vietnam
• Success defined in terms of large increases in the breadth and depth of coverage and financial protection
• These countries– have significantly expanded coverage (i.e., breadth, scope, and depth)
through NHS, SHI, and private health insurance systems
– have average or below average health spending and little, if any, external aid
– have better than average health outcomes
Source: Gottret, Schieber and Waters, Good Practices in Health Financing, 2008
Estonia - Classic SHI Model
Payroll Taxes13% of employee’s wages paid entirely by employers and self-employedindividual’s earnings.
Subsidizes most of the 49% of population non-contributors
Social Insurance FundsEstonian Health Insurance Fund (EHIF)
InstitutionsSupervisory boardcomprised of fifteen representatives - fivefrom the state, employers and beneficiaries. This oversees the Management Board – a body with three to seven members which oversees EHIF operationsand regional departments
Benefits/Cost-SharingCash benefits –dental care, pharmaceuticalsBenefits in kind – healthprevention and promotion,physician services,specialist care, long-term care.Exclusions include cosmetic surgery and alternative therapies.Statutory limited cost-sharing for specialist visits and bed-days.
Contracting and Provider PaymentPublic and private inpatient and outpatient specialist services:capped cost-volume contracts set the financial frames; fee-for-service, visit fees,per diem, DRGs are basis for reimbursement of single cases.Extra-billing is allowed only for services not includedin the benefit package .
Contracting and Provider PaymentPublic and private family practitioners: a combination ofcapitation and fee-for-service,lump sum to cover fixed costs, quality bonus
General Revenues Paid
by state on behalf of 4% of enrollees
Eligibility
Residence in Estonia and paying contributions (employee) or eligible without contributions (e.g. children, pensioners) or contributions paid by state
Estonia – Lessons Learned(Classic SHI Model)
• The reform from a Soviet NHS to a SHI model was carefully planned and enjoyed strong support from the medical community
• Health insurance system design (revenue collection, budgeting) was in line with overall prudent fiscal policy and supported development of formal employment sector
• The health financing reform benefited from economic growth
• Streamlining revenue collection through the Estonian Tax Board (since 1999) allowed EHIF to focus on purchasing health care for its beneficiaries
• A single risk pool and clear regulatory framework have allowed the EHIF to be an efficient administrator of SHI funds and perform as an effective purchaser
• Transparent regular reporting has played an important role in limiting SHI spending to available revenues
• Strategically designed out-of-pocket payments in conjunction with social insurance can play an important role in the sustainability of health care financing
Sri Lanka – Classic NHS ModelEligibilityCitizenship gives entitlement to free universal care
General Tax Revenue
Private providers – mainly providing outpatient care bymedical officers working off-duty
OOP
Benefits/Cost-Sharing
All government health services including inpatient, outpatient, community health services, and HIV/AIDs drugs.
Provider paymentPublic providers are largely paid based on budgets and staff are salaried
Provider paymentPrivate health care providers
are paid by fee-for-service
Public providers ranging fromprimary care to hospital-provided tertiary care
Medical benefit schemes/Group medical insuranceschemes
Private voluntaryhealth insurance
National Health Service
Sri Lanka – Lessons Learned(Classic NHS Model)
• Democratic accountability can ensure that health systems are responsive to the needs of the poor.
• Fair access to all should be a priority goal of health systems.
• Health systems must provide the poor with insurance against catastrophic illness.
• Efficiency in health service production is more important than resource mobilization in overcoming resource constraints.
• Pessimism about the relative inefficiency of public service production is as unwarranted empirically as it is theoretically.
• Use of consumer quality differentials in a dual public-private system can be a more effective mechanism for targeting health subsidies than explicit targeting.
Thailand – MHI Model
tax
UCS
NHSO SSOComptroller General
CSMBS
public/privateproviders
contribution
insurees,right holder
SSS
services
private room
nonessential drug
2001 1978 1990
47 million population 5 million population 9 million population
capitation
$US 65/capita
capitation
$US 70/capitafee-for-service
$US 150/capita
Universal Health Insurance: 2007
Thailand – Lessons Learned(MHI Approach)
Dos
• Gradual but determined and progressive reform
• Flexible implementation• Decentralization• Transparency and accountability• Involvement of private providers, CSOs,
and local government• Adequate parallel investments in human
and physical infrastructure• HRH need to be involved, nurtured, and
supported
Don’ts
• Too rapid expansion of the depth of coverage without adequate consideration of the financial and health services burden
• Too rapid, aggressive, and inflexible reform
• Too aggressive social marketing, which can create unrealistic expectations and demands
• Underestimating the effect of the growth of the private sector
• Overusing financial incentives to solve HRH problems and underestimating the importance of non-financial motivation, social recognition, and fairness
Success Factors in ‘Good Practice’ Health Coverage
Expansion Reforms
Institutional and Societal Factors
• Strong and sustained economic growth • Long-term political stability and sustained
political commitment• Strong institutional and policy
environment• High levels of population education
Policy Factors
• Commitment to equity and solidarity• Health coverage and financing mandates • Financial resources committed to health,
including private financing• Consolidation of risk pools• Limits to decentralization• Primary care focus
Implementation Factors
• Coverage changes accompanied by carefully sequenced health service delivery and provider payment reforms
• Good information systems and evidence-based decision-making
• Strong stakeholder support • Efficiency gains and copayments used as
financing mechanisms• Flexibility and mid-course corrections
Source: Gottret, Schieber, and Waters, Good Practices in Health Financing, World Bank, 2008Note: Countries included in the study -- Chile, Columbia, Costa Rica, Estonia, Kyrgyz Republic, Sri Lanka, Thailand, Tunisia, and Vietnam
Financing Health in High-Income Countries
From community-based voluntary insurance
↓
Formal public insurance funds
↓
Social or national health insurance systems
• 13 of 25 HICs use general revenue-based approaches, 9 have SHI, 3 mixed approaches
• Aided by political will and economic growth
• Changes focus on efficiency gains
Source: Gottret and Schieber, Health Financing Revisited, 2006
Some Recent Evidence from the Technical Literature
• Comparisons of SHI vs General Tax Financing
– Overall
– OECD
– ECA
• Single vs Multiple Payor Approaches in Europe
– Issues
– Summary of the General Evidence from Europe
Single, Competing, and Multiple Purchasers in European Health Systems
Source: Evetovits, WHO 2010
Comparisons of SHI and General Tax Financing• As far as revenue collection is concerned, SHI systems have a smaller tax base, and
introducing SHI may reduce resources available for health if the finance ministry reduces its allocation of tax revenues to health in line with projected (not actual) SHI revenues.
• The incentives to contribute in many SHI systems are weak, reflected in high rates of non-enrollment and evasion in contributions.
• Unlike general revenues, SHI tends to be regressive, and while the implications of the choice between the two for employment levels is not clear-cut, it does seem clear that SHI financing may contribute to the informalization of the economy.
• As far as risk-pooling is concerned, SHI systems typically take decades to achieve universal coverage with coverage rates for the formal sector often below 100%; major problems involved in enrolling informal sector workers; and, coverage of the poor being erratic and problematic with errors of both inclusion and exclusion.
• As a result SHI systems sometimes have multiple risk pools with different benefit packages and different contribution rates, even after ex post risk-equalization payments.
• Despite claims that SHI allows for competition between insurance schemes, resulting in downward pressure on administrative and health-care costs, in practice, cost reductions by individual schemes are often achieved largely through risk-selection, which even the most sophisticated ex ante risk equalization schemes are unable to prevent.
• As far as the purchasing and provision of health care is concerned, a purchaser–provider split and strategic purchasing can just as easily be achieved under a tax-financed system as under a SHI system.
Source: A. Wagstaff, Social Health Insurance Reexamined, JHE, 2009.
Transition from Tax Financed Systems to SHI in OECD Countries
• Increases per capita health spending by 3-4 percent
• Reduces the formal sector share of employment by 8-10 percent
• Reduces total employment by as much as 6 percent
• For the most part has no significant impact on amenable mortality, but for one cause-breast cancer among women-social health insurance systems perform significantly worse, with 5-6 percent more potential years of life lost.
Source: Wagstaff, Social Health Insurance vs. Tax-Financed Health Systems - Evidence from the OECD, World Bank, 2009.
Impacts of SHI Adoption in ECA• SHI adoption per se increased government health expenditure per capita. • SHI has impacted on how physical resources are used, by reducing average hospital
length of stay and increasing bed occupancy rates and hospital admissions. • Much of the extra spending caused by SHI adoption would appear to have resulted
in more costly admissions and/or extra spending elsewhere in the health system including:
– the higher salary share of costs resulting from health professionals support of SHI; – costs incurred undertaking new activities (e.g. collecting contributions, writing contracts with
providers) or that existing activities became more costly (e.g. more tests being administered on in-patients, more expensive drugs being given, etc.);
– less comprehensive and less well integrated public health and prevention programs resulting in extra admissions (i.e., for infectious diseases) and extra costs; and,
– gaps in coverage may also be part of the explanation as some groups seem to have fallen through the coverage net, and there is anecdotal evidence that some formal sector workers wait to enroll until they get sick.
• The transition to SHI has not caused general improvements in health outcomes (morbidity or amenable mortality) for ECA countries.
• SHI adoption did not always lead to provider payment reform and even when it did sometimes did so with a lag, because some non-SHI countries reformed the way they paid hospitals as well.
Source: A. Wagstaff and R. Moreno-Serra, Europe and Central Asia’s Great Post-Communist Social Health Insurance Experiment: Aggregate Impacts on Health Sector Outcomes, JHE (28) 2009.
Single vs Multiple Insurance Systems: Good Use of Ones MonopsonyPower May be Easier Than Managing Competition
Source: P. Schneider, Competition and Health Insurance, Knowledge Brief, Vol 10, August 2009, World Bank
Does the Evidence Support a Move From Single to Multiple-Payer Systems
Source: Evetovits, WHO 2010
The Road to Universal Coverage: Lessons Learned
• Economic growth most important factor
• Strong political commitment, management and administrative capacity also critical
• Voluntary and community-based financing help build public confidence in prepaid schemes
• Pool risk as coverage expands: the critical issue is risk pooling, whether SHI or NHS is ultimately chosen is of secondary importance
• Evaluate at each stage
Source: Gottret and Schieber, Health Financing Revisited, 2006
Conclusion: General Financing Challenges
• There is no one ‘right’ financing model.
• System financing must be sustainable --meaning that future economic growth generates sufficient levels of income for decent living standards and external debt solvency.
• LICs face difficult tradeoffs between financing essential services and providing financial risk protection -- prioritization is critical.
• For low income countries receiving large amounts of external assistance, there are serious questions of absorptive capacity as well as their ability to finance from domestic resources both future recurrent and capital costs.
• Most MICs are challenged to provide universal coverage, reduce fragmentation among risk pools, and improve purchasing efficiency.
• The critical issue is risk pooling, whether SHI or NHS is ultimately chosen is really of secondary importance.
• The critical condition regarding the speed of evolution to universal coverage is the level of income and its rate of growth. Evidence also suggests that the ability to administrate is a key enabling factor for success.
• Models need to be tailored to individual country circumstances.
