Overview of
“ Health Care Financing”
Dr Kambiz Monazzam
Khoramabad – Lorestan
May 18-21, 2005 1
Goals of Financing Module
Provide more in-depth knowledge of the
financing control knob
Study the five methods of financing and
compare their strengths and weaknesses
Provide tools—NHA and strategic
framework for national financing
Work for a financing strategy for Iran
2
Financing Affects What
Goals?
Access to Average and Distribution
health care
Health
Quality of
Status
Services
Prevention
Financing Risk
Protection
Cost Public
Satisfaction
Equity in distributing
costs and benefits
3
Health Policy and Financing Policy are
Inseparable Because; Financing Policy
Determines:
How much is available
Who controls the funds and how
they are used
Who allocates the resources and
their uses
What financial incentives are given
to patients and providers
4
Financing Policy determines:
Who has access to basic health care
How many people fall into poverty
Whether health care cost inflation
can be controlled
5
The Golden Rule:
“Those who have the Gold
make the Rules.”
Alfredo Bengzon, M.D.
Secretary of Health
Philippines
6
Financing Method Alters:
Incentives on both consumers and
insurers (e.g. adverse selection, risk selection)
Incentives on patients and providers (e.g.
moral hazard, induced demand)
Organizational structure and relations
between key players
7
Narrow Concept:
Financing Defined as:
Mobilizing Financial
Resources
8
Financing, Allocation and
Payment:
The Three Key Questions
Financing
Allocation
Payment
9
Financing
Collecting
Pooling
Purchasing
10
Financing Options
Self pay (include user fees)
General tax revenue financing
Insurance:
– Social insurance: Compulsory; Public or
private management
– Private: Voluntary
Community Financing
Individual Savings Account
11
What are General Tax Revenues?
Earnings from government enterprises (e.g. oil)
Direct taxes
– personal income taxes
– corporate profit taxes
– property taxes
– wealth taxes
Indirect taxes
– sales taxes
– value added taxes
– excise taxes (Tobacco and alcohol)
– import duties
– export taxes 12
Insurance Features:
Health risks are highly skewed; 10% of population
usually consume 60% of the total health expenditure;
30% has no expenditure
Risk Aversion; Individuals pay predictable amounts
when healthy to cover unpredictable costs when
sick/injured
Risk Pooling; Health insurance agencies pool many risks
together and generate resources to pay unpredictable
large health bills
cross-subsidy; Equity objectives served when more
healthy/wealthier people cross-subsidize less
healthy/poorer people through risk pooling 13
What Is Social Insurance?
Law compels employers to deduct a % of each employees
monthly wage for health to be paid into a “social insurance
fund”
Law compels employee to pay a % of his/her monthly
wage, (deducted by the employer) to “social insurance
fund”
Social insurance funds can be managed publicly or privately;
they can be monopolies or competitive
The employer/employee deductions are earmarked for
health, and cannot be used for any other purpose
Applicable largely to formal sector employers and
employees; evasion is severe among self-employed 14
What is Private Insurance?
Emerges from voluntary actions in a market
where buyers are willing to pay premium to
insurance companies that;
-- pools the risks and insure them for health
expenses
– Contract and pay providers who provide
treatment for members
Motivated by the prospect of earning a profit
Private insurance companies compete for clients
on the basis of “price” and quality
15
What Is The Successful Community
Financing Method?
Community-based funds where members prepaid a set
amount each year for specified services. Government
subsidizes the poor.
Organize and operate primary care clinic at village level
to gain efficiency and quality
Contract and pay secondary services
Managed by community members, not the government,
accountable back to members
Governmental role--initiate, train, support monitor and
regulate CF schemes
16
Potential Improvement in Efficiency &
Quality Under Community Financing
Efficiency Gains: Organized primary care with
salaried practitioner at the village level; Bulk purchasing
drugs; Contracting for secondary services
Lower Costs: Bulk purchasing and distribution of
drugs; Remove incentive to induce demand
Improve efficiency and accountability: Manage by
Community Members for their own benefits with
external monitoring and regulation
Improve responsiveness and quality: Monitored
and managed by Community Members 17
User Fees:
Introduce in 1980,s in developing
countries
Direct payments for health services,
and cover part of or full expenses of
the health services
18
User Fees:
The idea of changing user fees
promoted by World Bank and IMF, and
is a condition for new loans and debt
relief.
19
User Fees:
Charges is seen as a breach of the
principles which ensures equal
access to the health care system
without regards to the ability to pay
(Badgley, 1979,p31).
One of the reasons is to increase
revenue.
20
User Fees:
Advantages:
– Limitation of over all cost
– Curtailment of abuses
– Deterrent to over serving
– Increased sense of responsibility
21
User Fees:
Disadvantages:
– Participant culpability
– Non-selectivity of user fees
– Control of prices
– Rebound effect
– Difficulty of collection ,non-payment, a
loss of participants, the non-
adherence to this practice by staff
– Regressive impacts 22
23
A Summary of Ranking of Different
Financing Methods (I)
Equity Risk Reduce Risk Efficiency*
Pooling Selection
BEST
General Rev General General Rev User Fee (Sometimes
Rev Hard to collect)
Social Ins Social Ins Social Ins Social Ins
Comm Fin. Comm Fin Comm.Fin Comm. Fin.
Private Ins User Fees Private Ins Private Ins (High
Administrative Cost)
WORST User Fee User Fee --------------- General Rev/ Direct
Provision (Inefficient)
24
*Efficiency factors include technical efficiency and administrative costs.
Where do you want to go?
25
Evolution of Health Care Financing and Provision
Systems at Various Stages of Economic
Development
Stage II
Stage I Stage III
(segmented Fin and
(three-tiered system) (universal coverage**)
Prov)
Poor Low
(less than $1,800)* ($1,800-$4,800)* ($5,000-$12,000)* (greater than $12,000)*
General
Public health, prevention NHS (UK, N.Z.)
Revenue
Public health services Public Health Service Medisave + Cat.
Financed
(clinics, hospitals) (Singapore)
+ Donor
(50-60%) (40-50%) (20-40%)
Social For civil servants Social Direct Prov. NHI (Canada,
Insurance only
(10-20%) (
insurance )
Indirect Prov. Australia)
Bismarckian Social
Insurance
(30-60%)
(Germany,
Japan)
Private Private Insurance Managed Care +
Negligible (5-10%)
Insurance (15-40%) Medicare (USA)
Private hospitals & clinics
Self-pay Pharmacists Self-pay Self-pay
Indigenous providers
(35-45%) (20-40%) (15-25%) (15-25%)
Mali, Nigeria, China, Egypt, Turkey, Chile, Mexico,
Tanzania, Kenya, Peru, Ecuador, Argentina, Brazil, * GDP per capita, 1997 PPP $
Yemen, Philippines, Lebanon, Venezuela, 26
** Except USA & Hong Kong
Bangladesh, India Indonesia Thailand, Malaysia
Financing Options for Formal
Sector Workers and Families
All of them can be funded by: Social
Insurance ( Payroll Contribution)
High Income: Private Insurance; User
Fees
Middle Income: Modest Private Insurance
and some User Fees
Low Income: Modest User Fees
27
Financing Options for Workers in
Informal Sector or Self Employed
High Income: Private Insurance, User
Fee
Middle Income: Modest Private
Insurance, some user fees
Low Income: Modest user fees 28
Financing Options for Farmers and
Other Self-Employed Rural Residents
For all residents: Community
Financing
High Income: Private Insurance, User
fees
Middle Income: Modest private
insurance, some user fees
Low Income: Modest User Fees
29
What goals does a society
want to achieve?
Equity in health status and equal access to health care
Equitable Risk protection
Public satisfaction
Efficiency
Quality
Sustainability (including public’s satisfaction for the
amount they have to pay and the benefit received)
What trade-offs are a society willing to make among the
goals?
30
Best Practices Around the
World
Government Finances:
Public Health and Prevention
Subsidize the Poor and Low-Income People
for Health Services
Subsidize Risk Pooling Schemes for Insuring
Against Catastrophic Health Expenditures
Training
Research and Development
31
Modern practices in health care financing
For equity reasons, government has to finance a
significant part of total health expenditures,
especially subsidize the poor
Government has to establish means to reduce
adverse selection by the healthy people and to
regulate risk selection in private insurance industry
Money needs to follow the patient to generate
competition in the delivery of health services
Effective competition requires organized
intermediary for consumers
Rational pricing policy to coordinate public/private
sector providers
32
“Think it over...”
33
Equity and Efficiency In
Health Care Financing
34
Goals:
Equity: Do citizens have equal access?
Are financial burdens shared fairly?
Risk Pooling: Are risks properly pooled?
Efficiency: Are resources allocated most effectively
to produce better health and risk protection?
Are health services being produced in an
efficient way?
How much administrative paperwork?
Quality: How to assure patients’ satisfaction and
technical quality?
Sustainability: Financial, political, public support
35
The Difficult Balance of Goals
Health Risk Public
Status Protection Satisfaction
Level
Distribution
36
Is Equitable Health Care
Affordable and Attainable?
WHAT IS EQUITY?
37
Equity
Who bears the burden?
– Statutory and economic incidence
– Vertical and horizontal equity in financing
Who reaps the benefits?
– Benefit incidence: what to measure?
Financial value, access, use, outcomes?
38
Equity is an ethical and moral concept
Equity is about justice and fairness
Many definitions of equity
39
Horizontal and Vertical
Representation of a Society
Financing (Burden)
– Income or ability to pay
Delivery (Benefits)
– Health Need
40
Horizontal and Vertical
Representation of a Society
HORIZONTAL DIMENSION
GROUP 1
VERTICAL DIMENSION
GROUP 2
GROUP 3
GROUP N
41
Equity in Financing
In General:
A Financing system is considered to be
Vertically Equitable if those with a greater
ability to pay contribute a greater share of
their income to pay for health care
42
Equity in Delivery
HORIZONTAL EQUITY
“EQUAL TREATMENT OF EQUALS”
VERTICAL EQUITY
“MORE HEALTH CARE FOR THOSE WITH
MORE NEED”
NOTICE: A DELIVERY SYSTEM CAN BE HORIZONTALLY
EQUITABLE WHILE AT THE SAME TIME BEING
VERTICALLY INEQUITABLE
43
Equity in Financing and
Delivery of Health Care
Many Think an Equitable Health
System Would be One Where:
People with equal need can obtain equal
care; and
People contribute to the financing of
health care according to their ability to
pay
44
EQUITY and
Ways of Finance
Progressive
Proportional
Regressive
45
Financing Equity: Progressive (2)
Hhld.
$$$ Progressive
Spent
On
Health Proportional
0 H1 H2 H3
Total Household $$$ minus Subsistence
46
Financing Equity:
Proportional
Hhld.
$$$
Spent
On -------------------------------------
------------------------
Health ---------- Proportional
0 H1 H2 H3
Total Household $$$ minus Subsistence
47
Financing Equity: Regressive
Hhld.
$$$ Regressive
Spent
On
Health Proportional
0 H1 H2 H3
Total Household $$$ minus Subsistence
48
Comparison of Burden Under
Different Financing Methods
SHI Income User
Household 3% rate Tax Fee
Income ($) ($) ($)
H1 = $200 6 0 20/visit
H2 =
$2000 60 200 20/visit
H3 =
$20000 600 5000 20/visit 49
Worst Case Scenario for
the Poor
Poor households contribute more to health
relative to their incomes than do the rich
Resources for health spent by MOH tend to
benefit the rich more than the poor
50
Financial Risk Protection and
Equity
Achieved by pooling revenue for
health so that the relatively rich and
healthy cross-subsidize the relatively
poor and sick
A means of protecting the relatively
poor from catastrophic financial loss at
times of serious illness or injury
51
Motivation for Financial
Risk Protection
Individuals are risk averse
Attractive to pre-pay when funds are available
and people are healthy
Out-of-pocket payments leaves people
vulnerable to borrowing and indebtedness at
times of serious illness or injury (or not
seeking health services at all)
52
The Magic Revenue Mix?
53
Conclusions
There is no perfect, magic revenue mix
Each component source of revenue will have
different equity implications, resulting in
positive and negative tradeoffs for equity
A mix of revenue sources can become
entrenched. Changes will take place not only
in view of equity considerations but
efficiency considerations, administrative
realities, and political considerations as well.
54
Conclusions cont’d
The public sector isn’t the only actor; the
size of the private sector is immensely
important as well.
Maximum impact of the public sector on
equity can only occur if public revenues
are raised as equitably as possible and
then spent as equitably as possible.
A long-run goal of any health system is to
increase financial risk pooling and
prepayment, while reducing out-of-pocket
payments
55
56
END
57
“Think it over...”
58
Functions of the Control Intermediate Ultimate
Health system Knobs Goals Goals
Finance EQUITY
Stewardship
(oversight) Responsiveness
(to non-medical
Payment expectations)
ACCESS
Organization
Creating EFFICIENCY
Delivering
resources services Health
(investment (Provision)
and training) Regulation
FISCAL
IMPACT
Behavior Fair Financial
Contribution
Financing
(collecting, pooling
and purchasing)
QUALITY
59
Thailand country profile
60
Population = 61.9 millions (2000)
Growth rate = 1.05%
GDP/cap = US$1,958; US$6,000 (ppp.)
Literacy rate = 93.1%,
HDI = 0.757, Rank = 66
95% Buddhism and Thai 61
Percent of GDP
0
10
20
30
40
50
60
1960 12.52 39.79 47.72 70
14.1 37.13 48.77
13.98 33.49 52.53
1966 13.72 36.5 49.78
14.99 31.51 53.5
15.95 25.89 58.16
1972 18.14 25.36 56.23
19.15 27.01 53.84
19.68 26.68 53.64
1978 20.0 24.5 55.5
21.51 23.24 55.25
18.55 21.32 60.13
22.91
Others
1984 17.57 59.52
15.66 23.88 60.46
Industrial
Agriculture
16.18 25.84 57.98
1990 12.75 27.16 60.09
12.3 27.5 60.2
10.6 28.1 61.3
1996 11.0 28.3 60.7
10.9 28.8 60.3
12.2 29.4 58.4
1999 10.7 31.2 58.1
Proportion of Economic Sector, 1960-2000
2000 10.3 32.0 57.7
62
Year
Thailand Basic Information
(2000)
Life expectancy at birth = 71.7 years
IMR = 26.0 per 1,000 live births
MMR = 13.2 per 100,000 live births
MD./ population = 1:2,800;
Bed / population = 1:450
63
Major Causes of Death among Thai People, 1967-2001
90
Heart diseaes Accidents
Death rate per 100,000 population
80
Cancer AIDS (reported) 79.5
70 AIDS (estimated) Pneumonia 69.2
72.1
68.44
Diarrhoea 62.5 64.3
61.5
63.47
63.9
60 58.5 61.6 58.61
56
54.7 52.7 51.7
49.7 52.5
51.3
50 49.5 48.5 50.9
49.85
49.7 48.47
42.7 44.5 45.6 45 48.9
40.6 43.8
41.9 43.5
40.92
40 41.8
39.3
41.2 39.56 36.54
37.73
33.5 36.8
33 37.4 33.5 35.1
33.53
30.3 33.33 35.55 32.97
32.2 31.5
30 27.6 30.2 31.9 30.29
27.9 27.17
23.1
26.2 26.1
22.4 19.3
19.2
20 21.9 18.98
15.2 15.9
16.5 13.5
14.9 11 11.5 11.3312.29 14
13.1 9.6 9 10.6
10 12.6 12.9
6.3 6.7 6.3 7 6.8 7 7.2 10.01 11.88 9.9
5.7
8.16 9.3 9 10.07
8.5
6.7 3 2.6 2.5 2.4 2.7 2.5 1.93
4 4.9 0.66 0.53 0.35 0.32
3.7 2.5 0.33
0
Year
0.58
0.1 0.23 0.76 2.4
0.03 0.07 0.23 0.9
1967
1972
1977
1982
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
64
Health Care Financing (HF) 2001
Year 2001
50%
44.5%
45%
Other
10.7% 40%
Central Gov. 35%
33.1%
33.4% 30%
30.5%
25%
20%
Household THE 170,203 Mil.Baht 15%
33.1% 10%
5%
3.5%
0%
year
CSMBS 1994 1995 1996 1997 1998 1999 2000 2001
12.8%
Social security
6.6% Central Gov. Local Gov. CSMBS
Social security Household Other
65
Chronological development of
health insurance in Thailand
1929 Private insurance business
1954 first Social security Act (but not implemented)
1974 Workmen compensation fund
1975 free medical care for the poor
1978 1st private health insurance company
1980 Royal Decree on CSMBS
1981 1st issuing of low income card
1983 Maternal and child health fund (phase 1)
1984 health card project (phase 2)
1990 Social Security Act covered enterprised >= 20
employees
1991 Health Card Project –insurance based (phase 3)
1992 Free medical care for elderly
66
Public Health Security Scheme Coverage
Source: Health and Welfare Survey 1991, 1996, 2001 and 2003 which was conducted by National Statistic Office, Thailand
100
Reform
90
80
70 0.9 UC
Percent
60 PA
75
50 31.5 Health Card
40 Priv Emp
12.6
30 Gov Emp
12.8 15.3 20.8
20
1.4 5.6 10
10 7.2
15.3 10.2 8.5 9 Year
0
1991 1996 2001 2003
Social Security Act National Health Security Act
67
Ratio of members in each scheme
by household income quintile
100%
7%
13%
80% 43% 39%
20%
60%
34% 26%
40% 30%
20% 15% 18% 34%
7%
6% 8%
0% 2%
CSMBS SSS UC
Q1 (poorest) Q2 Q3 Q4 Q5 (the richest)
Source: Derived from Tangcharoensathien V et al: Researcher analyzed data of Health and
Welfare Survey 2003 which was conducted by NSO Thailand.
Remark: 61.3 million population
68
Ratio of members in each scheme
by household income quintile
100%
7%
14%
13% 25%
80% 43% 39%
49% 17%
20%
60% 27% 19%
34% 26%
40% 30% 17%
23% 22%
15% 17%
20% 18% 18% 34%
27%
7% 6% 15%
6% 8%
0% 2% 4%
CSMBS SSS PHI UC Uninsured All schemes
Q1 (poorest) Q2 Q3 Q4 Q5 (the richest)
Source: Researcher analyzed data of Health and Welfare Survey 2003 which was conducted
69
by NSO Thailand.
Remark: 61.3 million population
Equity in Receiving
Health Care
percentage
9
8.17
8
7
6
4.82
5 3.74
4 3.65
2.87
2.57
3 2.45
2.77 1.99 1.64 1.27
2 2.59
2.14 2.2 1.98 1.74
1.9 1.92 1.83
1 1.71
0
1 2 3 4 5 6 7 8 9 10
Decile
1992 1994 1996 1998 2000 2002
Source: Data in 1992-2000 came from Thailand Health Profile 1999-2000.
Data in 2002 came from analysis of Socio-Economic Survey 2002 conducted by NSO.
Remark: Health expenditure of household was percentage out of income.
70
The that moves the mountain
Political linkage
Social Knowledge
movement generation
71
72