Health systems and Economic Policy

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Oct 28, 2013 (3 years and 8 months ago)

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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.