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Key issues in health care financing
Di McIntyre
Objectives
Introduce some key concepts
Introduce a useful analytic framework
Illustrate the analytic framework with some LMIC experience
Financial protection
Ensuring that no household is
impoverished because of a
need to use health services
Universal coverage
A health system that
provides all citizens
with adequate health care
at an affordable cost
Equitable financing
Contribute according to ability-to-pay and benefit according to need (capacity to benefit)
Cross-subsidies: Income cross-subsidies (rich to the
poor) [proportional or progressive?] Risk cross-subsidies (healthy to the ill)
Cross-subsidies in overall health system
Other key considerations
Efficiency: Level of revenue generation Costs of revenue collection &
administration Promotes technical & allocative efficiency
Sustainability: Stability Ability to expand over time
Feasibility
Framework (Kutzin)
Revenue collection
Pooling of funds
Purchasing
Revenue collection
Sources of funds: Balance between external & domestic
sources Balance between companies &
individuals Contribution mechanisms:
Structure of contributions Type of collecting organisation
Contribution mechanisms
General taxes: Direct taxes usually progressive,
particularly in LMICs Indirect taxes usually regressive, but
slightly progressive in some LMICs Share of these taxes determines
overall progressivity of tax revenue Key issue: Fiscal space to increase
spending on health care (debt burden)
Contribution mechanisms
Private voluntary health insurance: If major component of funding, tends to
be regressive If ‘top-up’ and in many LMICs,
‘progressive’ (only the rich contribute, but also benefit)
Mandatory health insurance: Depends on structure of contributions
(flat amount or flat % contribution, maximum cap tends to be regressive
Pooling of funds
Objective: Difficult to predict risk of an individual falling ill, but easier for a large group (pooling or spreading risk)
Key issues: Coverage and composition of risk pool:
Size of the population and the socio-economic status of groups covered
Mechanisms to allocate resources from pooling to purchasing organisations
Risk pool
Out-of-pocket payments and medical savings accounts allow no pooling (outside household)
Single, universal pre-payment funding mechanism maximises risk pool
Fragmented pools: Sustainability and equity problems
(reinsurance) People ‘fall through the cracks’
Expanding risk pools
Voluntary or social health insurance national health insurance: Level of income & economic growth rate Size of formal sector and urban
population Level of social solidarity Resistance by those currently covered
(changes in benefit package, contribution rates, etc.)
Opting out
Allocation mechanisms
Risk-equalisation between different insurance schemes: Risk profile of each scheme (age,
gender, chronic illness, etc.) Risk-adjusted capitation to cover
costs for standard benefit package Needs- based allocation of tax (and
donor) funds
Tax & SWAP
OOP user fee revenue
CBHI contributions
Matching govt. grant
SHI reimbursements
Global Fund ARV
Rural district Urban district
Systemic view
Purchasing
Choice of benefit package: Which services: low-frequency & high-
cost; high-frequency & high cost; comprehensive
Type of service provider: Public, NGO and/or private-for-profit (accreditation and contracting issues)
Route for accessing services: referral routes, PHC gatekeepers (rather than co-payments)
Affordability and sustainability
Reimbursement mechanisms
Payment mechanism Advantages Disadvantages Ways of minimizing disadvantages
Salary Predictable expenditureLow administrative costs
Possible under-provision and/or poor quality of care
Little incentive for efficient behaviour and productivity unless linked to performance
Peer-review of provider practicesLink part of payment to performance
Capitation Incentive for technical efficiency and preventive care
Administration costs reasonably low
Incentive to under-servicePossible cream-skimming (attracting low risk
patients)Possible cost shifting (referral to another
provider)
Adjust payments to riskMonitoring and peer-review of
provider practices (including referral patterns)
Patient choice of provider
Fee for service Incentive for technical efficiency (where fee schedules are fixed)
Incentive for over-provision and cost escalationHigh administrative costs
Global caps and/or adjusting fee to keep within resource limits
Budget allocation Predictable expenditure and tight control
Low administrative costs
Limited direct incentives for efficiency unless linked to performance
Can lead to under-servicing and cost shifting
Link part of payment to performance Monitoring and peer-review
Per diem Some incentive for technical efficiency
Incentive to extend length of stay and/or increase number of admissions
Global caps/budget limitsLower fees for longer stays
Case-based(includes diagnosis related
group* payments)
Strong incentive for efficient operation
Unpredictable expenditureRelatively high administrative costsIncentive for cream-skimming*
Adjust for case mix, i.e. by grouping people according to their use of resources
Context and process
No single ‘right’ way of funding health care – depends on what exists in the country and what is feasible
Process of developing and implementing health care financing policies are critical – need to be aware of key stakeholders’ views and to reduce opposition & engender support