Health systems and Economic Policy
Module
Lecture 2:
Health Care
Financing Part 1
David McCoy
Centre for Primary Care and Public Health
Queen Mary University London
•
Where dos the money for health systems
financing come from?
•
How does money flow into health systems?
Sources of finance
Individuals
Households
Business
Banks
Tax
Insurance premiums
(mandatory
vs
voluntary)
Direct payment
(out of pocket)
Grants
In
-
kind
Donors
Loans
Other
Individuals
Business
Donors
Public
budgets
Tax
DAH
Loans
(soft and hard)
Other income sources
Banks
Tax
Types of Tax
•
Direct
–
Income tax; corporate / business tax; duties on imports and exports; property
taxes;
–
Generally more progressive
•
Indirect
–
Sales and value added taxes
–
Indirect taxes are
usually regressive
•
except
when they relate to luxury goods
•
often
progressive in LMICs because:
–
exempt basic foodstuffs from VAT or GST
–
large proportion of subsistence households / informal markets
Tax
•
Dedicated / hypothecated taxes for health
–
Ghana increased its VAT by 2.5% to help fund its NHI system
–
Zimbabwe introduced a 3% levy on income tax to fund AIDS
interventions
–
Thailand has a dedicated tax on cigarettes and alcohol used for health
promotion
Dedicated / hypothecated taxes
Pros and cons
•
Clearer
mechanism for public preferences to be brought to bear on the political
process
•
More
direct accountability and transparency
(than general
fund
financing)
•
Re
-
pricing to influence consumption
behaviour (double or triple win)
•
A
fiscal illusion and mere window
-
dressing used to disguise
unpopular
tax
rises?
•
Can displace
funding for health from general tax revenues
•
Generally
not favoured by treasuries, since a
ringfenced
“health
fund” hampers
budget
flexibility
National Tax
-
based Revenue for Health
•
Positive aspects
–
promotes countrywide pooling
–
allows cross
-
subsidisation (especially if tax system is progressive)
–
costs can be controlled better
–
allows social / democratic
control
over use
of
money
•
Negative aspects
–
can be abused
–
difficult for poorer countries to collect
taxes (large
informal sector,
lack of capacity,
widespread poverty)
–
neoliberal globalisation
has eroded tax base of many
countries
•
Trade liberalisation
•
Tax competition
•
Tax evasion
Public expenditure as a proportion of GDP
•
Government expenditure as a proportion of GDP
–
25
-
38% in high
-
income countries
–
~ 15% in low
-
income countries
•
In general, tax revenue and the proportion of economic resources devoted to
government spending increase as the economy grows.
Per capita GDP
2003 (PPP $US)
% of GDP
captured as
public revenue
Per capita
public revenue
% of government
revenue allocated to
health care
Per capita
government
expenditure on
health
High income
country
30,000
30%
9,000
12%
1,080
Low income
country
600
15%
90
9%
8.1
Tax subsidies?
•
Almost 160 million people in the US obtain health insurance through their
work largely because the government subsidizes the purchase of
employer
-
sponsored coverage.
•
The current subsidy “costs” the US Treasury billions of dollars in lost
revenue
•
By excluding employer
-
sponsored health benefits from taxable income,
the law provides a larger subsidy to higher
-
income families, since higher
-
income workers pay federal and state income taxes at a higher marginal
tax rate than lower
-
income workers.
Fiscal space
•
“the availability of budgetary room that allows a government to provide
resources for a desired purpose without any prejudice to the sustainability of
[that] government’s financial position” (Heller, 2005).
•
Major factors influencing fiscal space in relation to health:
–
Gross Domestic Product (GDP)
–
share of GDP devoted to government spending
–
proportion of government spending that goes to
other demands
–
efficiency improvements
–
availability of external grants and ability to borrow
–
public debt
–
macro
-
economic policy / conditions
Fiscal policy
–
caps on public expenditure
•
Argument that
–
public spending needs to be capped, particularly in relation to non
-
traded goods and
services (e.g. domestic
labour
costs) to protect against inflation, currency appreciation
and fiscal instability.
–
public budgets should be preferentially spent on keeping foreign currency reserves high
and making debt repayments.
•
As a result, a large proportion of foreign aid to Africa has been redirected into
international currency reserves or domestic debt payments.
•
Studies show that these policies constrain public spending on education and health
•
Argued that there is little validity and evidence to support the macro
-
economic
rationale of the IMF’s restrictions on public spending on
labour
.
IMF Independent Eval uati on Offi ce. The IMF and Ai d to Sub
-
Saharan Afri ca. Washington: IMF, 2007. Avai l abl e at: http://www.i eo
-
i mf.org/eval/compl ete/pdf/03122007/report.pdf
Center for Gl obal Devel opment Worki ng Group on IMF Programs and Heal th Spendi ng. Does the IMF Constrai n Heal th Spendi ng i n Po
or
Countri es? Evi dence
and an Agenda for Acti on. Center for Gl obal Devel opment, 2007. Avai l able at: http://www.cgdev.org/doc/IMF/IMF_Report.pdf
Marphati a
AA,
Moussi é
R,
Ai nger
A, Archer D. Confronti ng the Contradi cti ons: The IMF, wage bi l l caps and the case for teachers. Acti on Ai d USA, 2007. Avai l ab
le
at: http://www.acti onai dusa.org/i mf_afri ca.php (Accessed Jan 2, 2008)
McKi nl ey T,
Hai l u
D. The Macroeconomi c Debate: On Scal i ng up HIV/AIDS Fi nanci ng. UNDP Pol i cy Research Bri ef No. 1, Sept. 2006. Avai l abl e at:
http://www.jl i ca.org/debate/Scal i ngUpHIV_AIDSFi nanci ng.pdf
0
5
10
15
20
25
Euro area
Europe &
Central Asia
(all income
levels)
Europe &
Central Asia
(developing
only)
European
Union
High
income
Low income
Lower
middle
income
North
America
OECD
members
South Asia
World
Health
Mil itary
Government health and military expenditure as % of total
government expenditure, 2011 (Source: World Bank)
0
5
10
15
20
25
30
35
Health
Mil itary
Government health and military expenditure as % of total
government expenditure, 2011 (Source: World Bank)
Fiscal capacity and national income in the European Region, 2004 (WHO
estimates for Member States with population greater than 500 000)
Health spending as a percentage of total government spending, 2004,
Member States in the European Region (WHO estimates)
Abuja Declaration, 2001
•
“We pledge to set a target of allocating at least 15% of our annual budget
to the improvement of the health sector”.
http://www.un.org/ga/aids/pdf/abuja_declaration.pdf
For your designated country, find out:
•
% GDP captured as public revenue
•
% GDP and public revenue used to service debt
•
% government expenditure on health, education, military
etc
•
Extent to wish taxation is progressive / regressive
•
Options for expanding the fiscal space for the health sector
Health Insurance
Pre
-
payment
–
protect against unforeseen medical circumstances / unpredictable health expenditure
–
protection for user and provider of health care
Arrow (1963):
•
uncertainty
associated with the demand for health care
•
uncertainty regarding the effectiveness of medical treatment
=>
demand for insurance to spread the risk and costs
•
Individual and community rating
–
Relationship between risk and cost of premium
Benefit packages
•
Tend to vary in low, middle and high
-
income countries
•
To cover what is common or what is risky?
•
Only what is cost
-
effective?
•
With or without co
-
payments?
•
Ceilings on expenditure?
Health Insurance
•
Different
types of health insurance
–
Social
health insurance
–
Mutual insurance
–
National health insurance
–
Private insurance
–
Community
-
based health
insurance
–
Medical savings
accounts
Social
Health Insurance
•
Mandatory health insurance
•
Usually for those in formal employment (because linked automatically to payroll deduction)
•
Government
-
managed or government sanctioned
–
Often involves a
parastatal
agency
–
There may be one or
several
–
Can have risk
-
adjustment between pools
•
Can also refer
to privately
-
managed, employment
-
based, not
-
for
-
profit schemes
–
Often
associated with relatively
large employers and relatively well unionised
workers
–
Can be known as employment
-
based ‘mutual health insurance schemes’ or ‘health cooperatives’
•
Contributions:
–
usually “community
-
rated”
–
can be tailored to income level and the number of
dependents
–
often a set proportion of income with caps on contributions above a certain income
level
•
Providers usually de
-
linked from government
•
Prescribed minimum benefit package is often specified in legislation
National Health Insurance
•
Tends to mean universal health insurance (everyone covered, not just those in
formal employment)
•
Most universal mandatory insurance systems have begun with coverage of formal
sector employees +/
-
their dependents
–
It took 127 years for Germany to achieve UC, 26 years for the Republic of Korea
–
Several Latin American countries which began with a mandatory insurance scheme covering formal
sector workers and their dependents, have this system entrenched and difficult to extend to the rest
of the
population
•
Coverage
gradually expanded as formal sector expands and efforts made to
include the self
-
employed, agricultural workers and informal sector workers.
•
Governments fund or subsidise the population not covered through
SHI
Tax versus
SHI (
Beveridge
versus Bismarck)
•
Ministry of Finance allocates from
general tax revenue
•
Ministry of Health often manages the
budget
•
Contributions and benefits are less
linked
•
Often funds public sector services
•
Hypothecated tax to health
-
less
subject to the whims of Ministers of
Finance
•
Increases cost to employment?
•
Gives a greater sense of
entitlement?
•
Contributions and benefits more
linked
•
Arms
-
length body may manage the
budget
•
Often a more pluralistic provider
market (enabling competition and
choice)
Private (voluntary) insurance
•
Often the
preserve of higher income groups
•
May be employment
-
based (creating a private risk pool)
•
Often for
-
profit
and commercially run
•
Often risk
-
rated
–
premiums
usually depend on an individual’s age, sex and health status at
entry
–
associated
with high transaction
costs
•
May substitute
for
or supplement
a statutory
scheme
–
In the USA,
Medicare
and Medicaid provide coverage for bad risk groups (the elderly and
disability pensioners, and the poor). Those who cannot afford private cover and do not
qualify for social cover are uninsured. There were c.50 million uninsured in the USA at
2001.
http://www.youtube.com/watch?v=sa69fxqydXg
Private insurance
•
Adverse selection: tendency for higher
-
risk individuals to enrol
–
Individual rating
–
Require entire families, rather than a single family
member
–
All employees in a company must enrol (i.e. not voluntary)
•
Cream
-
skimming: tendency for lower risk individuals to be recruited / higher
-
risk
individuals to be excluded (or differential premiums)
–
Open enrolment (any person or family wishing to join a health insurance scheme must
be allowed to do so)
–
Community
-
rating
•
Dumping: tendency to transfer risks / costs onto public sector
–
Regulation
–
Prescribed minimum benefits
Community
Based Health
Insurance
•
Also called
micro
-
insurance
–
mainly a developing country phenomenon
•
Affiliation based on community membership
e.g. usually by geographic
proximity
•
Communities participate in design, running and allocation of
resources
•
Distinct
from private health insurance, which is run and managed by a
private company; and from large
-
scale non
-
profit insurance such as
SHI
Community
Based Health Insurance
•
Size of membership
•
Voluntary or mandatory?
•
Progressivity of financing
•
Risk
-
rating
•
Cover / Benefits
•
External financing?
•
Management and administration
•
Interface with providers
•
Interface with community
•
Interface with ministry
Many different
types of CBHI, each
encompassing
a different combination of
strengths and weaknesses based on how the following
variables:
Community
Based
Health Insurance
•
Positive aspects
–
some level of financial protection through pooling
–
can be vehicle for community empowerment
–
may be first step towards a larger system of insurance
•
Negative aspects
–
size of pool usually limited
–
little opportunity for cross
-
subsidisation and risk
-
pooling
–
high transaction costs
–
vulnerable to failure
Medical Savings Accounts
•
Pre
-
payment
–
but no pooling
•
May be mandatory (Singapore)
•
May be tax deductible
Health Insurance Financing
Individuals
Business
Social Health
Insurance
CBHI
Government
Private insurance
MSAs
Segmentation
Seminar 2: National Health Accounts and Financing
Prepare a short presentation on the national health accounts of your
assigned country. Propose changes to the health financing system in
order to better achieve defined health systems goals. This would entail
an analysis of the strengths and weaknesses of current health
financing arrangements, and the likely challenges and obstacles to
health financing reform. It should also include consideration of your
country’s fiscal space and tax policies. Limit the presentation to ten
minutes and no more than ten slides each. Ten minutes each. No more
than ten slides.
Come
prepared to discuss the relative pros and cons of tax
-
based
financing; SHI, PVI, CBHI and MSAs.
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