1HealthcareFinancingHengjinDong,MA,MD,PhD1HealthcareFinancingOutlineofSessionsConceptualframeworkforhealthcarefinancingOptionsformobilizingresourcesforthehealthsectorOptionsforhealthsectorresourceallocationHealthpurchaserandproviderpayment2OutlineofSessionsConceptualTopic1Conceptualframeworkforhealthfinancing.3Topic1ConceptualframeworkfoTheHealthCareSystem4ConsumersofCare(Patients)ProvidersofCare(Doctors,hospitals)Insurers/Payers(Government)Source:JonssonandMusgrove,1997Money(directpayments)HealthServicesInsuranceCoverageMoney(taxes,premiums)Claims,BudgetsMoney(fees,budgets)TheHealthCareSystem4ConsumeHealthCareFinancingSystemDeterminethelevelofresourcesavailableforhealthcareDeterminehowthoseresourceswillbemobilizedDeterminehowmuchwillbespentonwhatkindofcareforwhomDeterminehowhealthcareproviderswillbepaidProvideinsuranceagainstindividualfinancialrisk(riskpooling).5HealthCareFinancingSystemDeAllocationofResourcestotheHealthSectorWhatarethemainexpenditureallocationpatternsandsourcesoffinanceforhealthsector?Healthexpendituresas%ofGNPGovernmentexpenditureas%oftotalPercapitahealthexpenditures6AllocationofResourcestotheHealthExpendituresandGDP(2005)CountryGNIp.c.($)P.C.Healthexp.($)Healthexp.(%ofGDP)Gov.h.Exp.as%oftotalh.exp.(90-98)Lowincome584244.731.0Middleincome2,6361385.954.4Highincome34,9623,68711.163.3OECD36,5063,84311.374.272000and2007worlddevelopmentindicatorsLowincome(2005):<$875p.cGNIHighincome(2005):>$10,725HealthExpendituresandGDP(2TheRoleofHealthInsuranceInsurance:Prepaymentforservicesthatwillbepaidforbya(publicorprivate)thirdparty(theinsurer)ifapre-definedeventoccurs.A(fullorpartial)substitutefordirectpaymentforservicesbytheconsumeroftheservices.8TheRoleofHealthInsuranceInTheRationaleforInsuranceReducerisktoindividualsbypoolingriskacrossagroup.Increasethepredictabilityofunexpectedlosses.Redistributethecostsofunexpectedlosses(improveequity).9TheRationaleforInsuranceRed10IndividualHealthCareCostsHealthySickTheHealthyPayMorethantheyUseTheSickPayLessthantheyUseSickindividualscanbecomehealthyandhealthyindividualscanbecomesickHealthInsuranceContributionPoolingHealthCareRisks10IndividualHealthCareCostsTopic2Optionsformobilizingresourcesforthehealthsector.11Topic2Optionsformobilizing12OptionsforFinancingHealthCareCentralizedpublicfundinggeneraltaxfinancingsocialinsuranceVoluntaryinsuranceCommunity-basedinsurancePrivateinsuranceOut-of-pocketpayments(UserFees)12OptionsforFinancingHealthEvaluationCriteriaEfficiencyEquitySustainabilityAccessQuality13EvaluationCriteriaEfficiency1Whypublicfundingforhealthcare?Publicgoods(efficiency)Financingcareforthepoor(equity)Riskpooling(privateinsurancemarketfailure)14WhypublicfundingforhealthImprovedEquitywithPublicFinancing15DistributionofHealthSpendingbyIncomelevel%ofTotalHealthSpendingSource:Gottschalk,Wolfe,andHaveman1989ImprovedEquitywithPublicFiGeneralTaxFinancing16GeneralTaxFinancing16SocialInsurance17SocialInsurance17IssueswithGeneralTaxSensitivetopoliticalpriorities.MoreofaprobleminU.K.--nationalbudgetLessofaprobleminCanada--localprovincebudgetsAchievingequityinresourceallocationtogeographicareas.U.K.population-basedformulaAchievingpurchaser-providersplit.18IssueswithGeneralTaxSensitiIssueswithSocialInsuranceHowtoachieveuniversalcoverage.Appropriatestructureofinsurers(singleinsurerorcompetition).19IssueswithSocialInsuranceHo20ComparisonofGeneralTaxationandSocialInsuranceAdvantagesofgeneraltaxation:Moreprogressive(equitable)Non-distortionaryLoweradministrativecostsAdvantagesofsocialinsurance:Earmarkedtaxforhealth;NotviewedassocialwelfareInpractice,successdependsonimplementation20ComparisonofGeneralTaxatiDisadvantagesofaMixedSystemofPublicFinanceDifficulttocontrolthetotalflowofresourceswhentherearemultiplepayers.Difficulttocoordinate(mixedsignalstoproviders;cost-shifting).21DisadvantagesofaMixedSysteCombinationsoffinancingandservicedeliveryFinancingProvidersPublicPrivateMixedGeneraltax(G)Canada,UKSocialinsurance(S)JapanBulgaria,Israel,CzechRepublic,France,GermanyMixed(G+S)MexicoRussiaKoreaPrivateI(P)Mixed(S+P)HungaryUSChina,Chile22Combinationsoffinancingand23VoluntaryInsuranceDifferentfrommandatoryinsurance--actuariallyfarepremiums.Marketimperfections:AdverseselectionMoralhazardRelationshiptopublicfunding:Supplementaryratherthancompetitive23VoluntaryInsuranceDifferentCommunity-basedInsuranceRisk-sharingschemeforhealthcareexpendituresthatisownedandmanagedatthecommunitylevel.Usuallyfocusesonprimarycare,butmayincludereferralservices.Oftenhasabroadercommunitydevelopmentfocus.Othertypesofvoluntaryrisk-sharingschemes:healthfacility,cooperative,NGO.24Community-basedInsuranceRisk-TypesofRisk-SharingSchemesType1High-cost,lowfrequencyeventsTendtobehospital-ownedTendtocoverwholedistrictUseactuarialbasisorvariablecoststocalculatepremiumCommittedtomeetingcertaindesignatedcosts.Type2Low-cost,highfrequencyeventsTendtobecommunityownedTendtobebasedatthevillagelevelPremiumsetmainlyaccordingtoabilitytopayCommittedonlytoraisingextrarevenueforservices.25Source:CreeseandBennett1997TypesofRisk-SharingSchemesT26Out-of-PocketPayments

(UserFees)MayprovidesupplementalresourcesandutilizationincentivesNotadequateasmainsourceoffinancingbecause:DoesnotgeneratesufficientresourcesDoesnotpoolrisksInequitable26Out-of-PocketPayments

(UseUserFeesinPublicFacilitiesGoals:RevenuegenerationStrengthentheroleofmarketsquality-basedcompetitionintroducepricesignals-->greaterefficiencyincentivestoincreasesupplyofservices(access)Reduceexcessutilization(moralhazard)Improvesustainability(affordable)ReinforcedecentralizationPrivatesectordevelopment27UserFeesinPublicFacilitiesPossibleNegativeAffectsofUserFeesMayreduceutilizationofnecessaryservices.Mayreduceutilizationdisproportionatelyamongthepoor.Administrativecostsarehigh.Mayaddto“under-the-table”payments.28PossibleNegativeAffectsofUPerformanceofUserFeesPeoplearewillingtopayforsomequalityimprovement,particularlydrugs(Cameroon,Ghana,Nigeria,Kenya,thePhilippines).Utilizationmaydecrease(Zaire),increaseifquality(pre-natalcareinNiger),orshifttoprivatesector(Indonesia,Lesotho)Impactonhealthoutcomes(Indonesia--indurationofillness,infectiousdiseasesymptoms,physicalfunction>age50)29PerformanceofUserFeesPeoplePerformanceofUserFees,cont.Costofcollectingfeesmaybehigherthanrevenuegenerated.Evidencethatqualityoraccesstoserviceshasimproved?Interpretationofperformanceoftenideologicallybased.30PerformanceofUserFees,contIssueswithUserFeesHowtosetprices:relatetocosts(cross-subsidizationofservices)relatetodemand(willingnessvs.abilitytopay;elasticity;roleofquality)Exemptionpolicies(protectthepoor).Efficientadministrationandfeecollection.Dorevenuesstayinthefacility,thehealthsector?31IssueswithUserFeesHowtose32Topic3

Optionsforallocatingresourcesinthehealthsector.32Topic3 Optionsforallocati33ResourceAllocationwithintheHealthSectorServiceactivities

(preventivevs.curative;primaryvs.secondary/tertiary)Populationgroups

(rural/urban,regions,incomelevels,etc.)Inputcombinations

(personnel,medical/nonmedicalsupplies)Diseasepatternsandcategories

(infectiousvs.chronic)33ResourceAllocationwithintMoreCost-EffectiveResourceAllocation3475%ofResourcestoInpatientCare25%ofResourcestoPHC50%ofResourcestoInpatientCare50%ofResourcestoPHCMoreCost-EffectiveResourceATopic4HealthpurchasersandProviderpayment35Topic4HealthpurchasersandP36ExamplesofPossibleHealthPurchasersMinistryofHealthLocalgovernmenthealthauthorityAreahealthboardsSocialhealthinsurancefundsPrivateinsurancefunds/companiesEmployersMember-owned/community-basedinsurancefunds36ExamplesofPossibleHealth37MarketStructureofPurchasersSinglepurchaser(Canada,U.K.)Multiplepurchasers:competitive(Germany,Korea)ornon-competitive(Mexico,Kyrgyzstan)unifiedpaymentsystems(Germany,Japan)ordifferentpaymentsystems37MarketStructureofPurchase38RoleofHealthPurchasersAnagentonbehalfoftheenrolledpopulationpromotingimprovedqualityandefficiencyinthedeliveryofservices. Example:traditionalindemnityinsurancevs.HMOsintheU.S.38RoleofHealthPurchasersAn39ActivePurchasingStrategiesFinancialincentivesthroughproviderpaymentmethods;Primarycare“gatekeeper”conditions;Managementofpatientchoice;Selectivecontracting;ProviderprofilingStandardtreatmentprotocols/priorauthorization39ActivePurchasingStrategies40ProviderPaymentMechanismsProviderpaymentmechanismscreateincentivesthatinfluencethebehaviorofproviders.Maybeprospectiveorretrospective.Relationshiptoqualityandpatientchoice(“themoneyfollowsthepatient”).40ProviderPaymentMechanismsP41ExamplesofProviderPaymentMethodsBudget(lineitemandglobalbudgets)SalariesCapitation(withfullorpartialfundholding)Case-basedpaymentFee-for-serviceDRGMixed41ExamplesofProviderPayment42IssuesforProviderPaymentSystemsBalancingefficiencyincentiveswithqualityincentives.Supportinginformationsystems.Providerautonomy.42IssuesforProviderPayment43HealthcareFinancingHengjinDong,MA,MD,PhD1HealthcareFinancingOutlineofSessionsConceptualframeworkforhealthcarefinancingOptionsformobilizingresourcesforthehealthsectorOptionsforhealthsectorresourceallocationHealthpurchaserandproviderpayment44OutlineofSessionsConceptualTopic1Conceptualframeworkforhealthfinancing.45Topic1ConceptualframeworkfoTheHealthCareSystem46ConsumersofCare(Patients)ProvidersofCare(Doctors,hospitals)Insurers/Payers(Government)Source:JonssonandMusgrove,1997Money(directpayments)HealthServicesInsuranceCoverageMoney(taxes,premiums)Claims,BudgetsMoney(fees,budgets)TheHealthCareSystem4ConsumeHealthCareFinancingSystemDeterminethelevelofresourcesavailableforhealthcareDeterminehowthoseresourceswillbemobilizedDeterminehowmuchwillbespentonwhatkindofcareforwhomDeterminehowhealthcareproviderswillbepaidProvideinsuranceagainstindividualfinancialrisk(riskpooling).47HealthCareFinancingSystemDeAllocationofResourcestotheHealthSectorWhatarethemainexpenditureallocationpatternsandsourcesoffinanceforhealthsector?Healthexpendituresas%ofGNPGovernmentexpenditureas%oftotalPercapitahealthexpenditures48AllocationofResourcestotheHealthExpendituresandGDP(2005)CountryGNIp.c.($)P.C.Healthexp.($)Healthexp.(%ofGDP)Gov.h.Exp.as%oftotalh.exp.(90-98)Lowincome584244.731.0Middleincome2,6361385.954.4Highincome34,9623,68711.163.3OECD36,5063,84311.374.2492000and2007worlddevelopmentindicatorsLowincome(2005):<$875p.cGNIHighincome(2005):>$10,725HealthExpendituresandGDP(2TheRoleofHealthInsuranceInsurance:Prepaymentforservicesthatwillbepaidforbya(publicorprivate)thirdparty(theinsurer)ifapre-definedeventoccurs.A(fullorpartial)substitutefordirectpaymentforservicesbytheconsumeroftheservices.50TheRoleofHealthInsuranceInTheRationaleforInsuranceReducerisktoindividualsbypoolingriskacrossagroup.Increasethepredictabilityofunexpectedlosses.Redistributethecostsofunexpectedlosses(improveequity).51TheRationaleforInsuranceRed52IndividualHealthCareCostsHealthySickTheHealthyPayMorethantheyUseTheSickPayLessthantheyUseSickindividualscanbecomehealthyandhealthyindividualscanbecomesickHealthInsuranceContributionPoolingHealthCareRisks10IndividualHealthCareCostsTopic2Optionsformobilizingresourcesforthehealthsector.53Topic2Optionsformobilizing54OptionsforFinancingHealthCareCentralizedpublicfundinggeneraltaxfinancingsocialinsuranceVoluntaryinsuranceCommunity-basedinsurancePrivateinsuranceOut-of-pocketpayments(UserFees)12OptionsforFinancingHealthEvaluationCriteriaEfficiencyEquitySustainabilityAccessQuality55EvaluationCriteriaEfficiency1Whypublicfundingforhealthcare?Publicgoods(efficiency)Financingcareforthepoor(equity)Riskpooling(privateinsurancemarketfailure)56WhypublicfundingforhealthImprovedEquitywithPublicFinancing57DistributionofHealthSpendingbyIncomelevel%ofTotalHealthSpendingSource:Gottschalk,Wolfe,andHaveman1989ImprovedEquitywithPublicFiGeneralTaxFinancing58GeneralTaxFinancing16SocialInsurance59SocialInsurance17IssueswithGeneralTaxSensitivetopoliticalpriorities.MoreofaprobleminU.K.--nationalbudgetLessofaprobleminCanada--localprovincebudgetsAchievingequityinresourceallocationtogeographicareas.U.K.population-basedformulaAchievingpurchaser-providersplit.60IssueswithGeneralTaxSensitiIssueswithSocialInsuranceHowtoachieveuniversalcoverage.Appropriatestructureofinsurers(singleinsurerorcompetition).61IssueswithSocialInsuranceHo62ComparisonofGeneralTaxationandSocialInsuranceAdvantagesofgeneraltaxation:Moreprogressive(equitable)Non-distortionaryLoweradministrativecostsAdvantagesofsocialinsurance:Earmarkedtaxforhealth;NotviewedassocialwelfareInpractice,successdependsonimplementation20ComparisonofGeneralTaxatiDisadvantagesofaMixedSystemofPublicFinanceDifficulttocontrolthetotalflowofresourceswhentherearemultiplepayers.Difficulttocoordinate(mixedsignalstoproviders;cost-shifting).63DisadvantagesofaMixedSysteCombinationsoffinancingandservicedeliveryFinancingProvidersPublicPrivateMixedGeneraltax(G)Canada,UKSocialinsurance(S)JapanBulgaria,Israel,CzechRepublic,France,GermanyMixed(G+S)MexicoRussiaKoreaPrivateI(P)Mixed(S+P)HungaryUSChina,Chile64Combinationsoffinancingand65VoluntaryInsuranceDifferentfrommandatoryinsurance--actuariallyfarepremiums.Marketimperfections:AdverseselectionMoralhazardRelationshiptopublicfunding:Supplementaryratherthancompetitive23VoluntaryInsuranceDifferentCommunity-basedInsuranceRisk-sharingschemeforhealthcareexpendituresthatisownedandmanagedatthecommunitylevel.Usuallyfocusesonprimarycare,butmayincludereferralservices.Oftenhasabroadercommunitydevelopmentfocus.Othertypesofvoluntaryrisk-sharingschemes:healthfacility,cooperative,NGO.66Community-basedInsuranceRisk-TypesofRisk-SharingSchemesType1High-cost,lowfrequencyeventsTendtobehospital-ownedTendtocoverwholedistrictUseactuarialbasisorvariablecoststocalculatepremiumCommittedtomeetingcertaindesignatedcosts.Type2Low-cost,highfrequencyeventsTendtobecommunityownedTendtobebasedatthevillagelevelPremiumsetmainlyaccordingtoabilitytopayCommittedonlytoraisingextrarevenueforservices.67Source:CreeseandBennett1997TypesofRisk-SharingSchemesT68Out-of-PocketPayments

(UserFees)MayprovidesupplementalresourcesandutilizationincentivesNotadequateasmainsourceoffinancingbecause:DoesnotgeneratesufficientresourcesDoesnotpoolrisksInequitable26Out-of-PocketPayments

(UseUserFeesinPublicFacilitiesGoals:RevenuegenerationStrengthentheroleofmarketsquality-basedcompetitionintroducepricesignals-->greaterefficiencyincentivestoincreasesupplyofservices(access)Reduceexcessutilization(moralhazard)Improvesustainability(affordable)ReinforcedecentralizationPrivatesectordevelopment69UserFeesinPublicFacilitiesPossibleNegativeAffectsofUserFeesMayreduceutilizationofnecessaryservices.Mayreduceutilizationdisproportionatelyamongthepoor.Administrativecostsarehigh.Mayaddto“under-the-table”payments.70PossibleNegativeAffectsofUPerformanceofUserFeesPeoplearewillingtopayforsomequalityimprovement,particularlydrugs(Cameroon,Ghana,Nigeria,Kenya,thePhilippines).Utilizationmaydecrease(Zaire),increaseifquality(pre-natalcareinNiger),orshifttoprivatesector(Indonesia,Lesotho)Impactonhealthoutcomes(Indonesia--indurationofillness,infectiousdiseasesymptoms,physicalfunction>age50)71PerformanceofUserFeesPeoplePerformanceofUserFees,cont.Costofcollectingfeesmaybehigherthanrevenuegenerated.Evidencethatqualityoraccesstoserviceshasimproved?Interpretationofperformanceoftenideologicallybased.72PerformanceofUserFees,contIssueswithUserFeesHowtosetprices:relatetocosts(cross-subsidizationofservices)relatetodemand(willingnessvs.abilitytopay;elasticity;roleofquality)Exemptionpolicies(protectthepoor).Efficientadministrationandfeecollection.Dorevenuesstayinthefacility,thehealthsector?73IssueswithUserFeesHowtose74Topic3

Optionsforallocatingresourcesinthehealthsector.32Topic3 Optionsforallocati75ResourceAllocationwithintheHealthSectorServiceactivities

(preventivevs.curative;primaryvs.secondary/tertiary)Populationgroups

(rural/urban,regions,incomelevels,etc.)Inputcombinations

(personnel,medical/nonmedicalsupplies)Diseasepatternsand