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Orvill Adams, Orvill Adams & Associates B.V. Orvill Adams Orvill Adams & Associates B.V. Health System Financing EPI 5180

Health System Financing EPI 5180

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Health System Financing EPI 5180. Health Policy and Financing. Policy objective – securing access for its citizens to some or all effective treatments. Financing objectives: Mobilizing funds for when they are needed Sharing risks Subsidizing access, where needed, for those with low income. - PowerPoint PPT Presentation

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Page 1: Health System Financing EPI 5180

Orvill Adams, Orvill Adams & Associates B.V.

Orvill Adams

Orvill Adams & Associates B.V.

Health System FinancingEPI 5180

Page 2: Health System Financing EPI 5180

Orvill Adams, Orvill Adams & Associates B.V.2

Health Policy and Financing

Policy objective – securing access for its citizens to some or all effective treatments.

Financing objectives: Mobilizing funds for when they are needed Sharing risks Subsidizing access, where needed, for those with low

income

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Orvill Adams, Orvill Adams & Associates B.V.3

Models for financing health care 1. Solidarity-based financing system

Taxation – funds raised from general government taxation of the population – direct taxes on income or wealth – indirect taxes such as sales tax

Under taxed based systems risks are shared Provides significant subsidies from richer to poorer populations

Countries using taxation as major source of funds United Kingdom, Ireland, the Nordic countries, many countries in

sub-Saharan Africa, and Canada

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Models for financing health care 2. Social Health Insurance (SHI)

Access to care is provided on the basis of need, and payment for insurance is based on income or the ability to pay Insured persons pay a regular contribution based on income or

wealth Access to treatment or care is based on clinical need and not

ability to pay Contributions to the social health insurance fund are kept

separate from other government-mandated taxes and charges SHI finances care on behalf of the insured persons, and care is

delivered by public and private health care providers

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Models for financing health care 2b SHI funds are formally separate from general taxation

funds, and may be organized and managed by autonomous organizations

SHIs are often in two ways: From direct payments by government directly to providers of care Government payment of subscriptions for people unable to pay for

themselvesCountries that use SHI include: Germany, many other countries in

Eastern and Central Europe, Japan, South Korea

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Comparison between Tax-based and SHI1. Separate structures for collecting and managing

funds tend to give the system more transparency2. The fact that members are insured and access to

care is dependent on contributions to the fund, can give the patient the status of customer

3. To keep the system in balance it is necessary to be more explicit about the range of services to which the contributor is entitled

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Community Prepayment Schemes (CPS) 1. Financial and government institutions relatively

weak Attempt to mobilize and manage resources locally Insurance at the community level or through firms

or cooperatives Community based schemes – provide members

with the opportunity to give a flat payment in advance in return for free or reduced-cost health care if they get sick.

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Community Prepayment Schemes (CPS)2. CPS developed in poorer areas in poor countries Risks facing individuals are not independent

because some health risks facing individuals are not independent, because some health risks will occur at the same time for the whole local population (e.g. floods infectious disease)

Community health insurance schemes are very vulnerable because they are not efficient in risk sharing

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Non-Solidarity Schemes

Private risk-based health insurance

Medical savings accounts

Out-of-pocket prepayment

Informal fees

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Private risk-based health insurance (PHI)1. Consumers choose insurance products covering a

range of benefits and conditions, according to their willingness and ability to pay

Private insurance schemes set contributions on the basis of risk

The unemployed or people in dangerous jobs may find it difficult to afford private insurance and must fall back on publicly provided services

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Private risk-based health insurance 2. Argued that it is inequitable but inequities can be

reduced if government regulation bans risk-rating practices

Private risk-based health insurance helps to mobilize resources for when they are needed, provides some sharing of risks, but does not redistribute resources from the rich to the poorer

Countries in which Private health insurance is used: USA, Several Latin American countries and South Africa

have relatively high enrollment in PHI.

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Medical savings accounts

Funds are saved and protected so as to be available when needed

Compulsory saving system: Individuals or families must set aside funds into a special

account until the funds reach a defined level. They can spend this money only on approved forms of medical costs, and when money is spent they must save again until the reserves are replenished

Need for other mechanisms to cover the very high costs of serious illness

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Out-of-Pocket Payments (OPPs) Fees paid by the patient on use of health services

Include: User fees for public sector services Payments to private providers at the point of contact

Pros – can contribute to financial sustainability and referral patterns and reduce unnecessary use of services

Cons – cost recovery potential of user fees is limited, particularly without retention of fees at the point of collection; equity suffers, especially through the failure of adequate exemption policies

Countries: South and South East Asia, Africa, countries of Central and Eastern Europe, and the former Soviet Union

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Informal fees

Informal or unofficial fees are payments – monetary or non-monetary made by an individual to a state health worker during official hours of work that do not form part of the workers official salary

Types: Payments for doctors when state finances have collapsed Culture of rent seeking and entitlements Gift giving as a sign of respect

Informal fees affected by prevailing cultural values and conventions

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Funding by NGO and development aid partners World Health Organization (2007) reports that 19

countries were heavily reliant on external aid for over 30% of their aggregate health care spending

Regionally, Africa has the highest dependence on external funding.

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Evaluating Health Financing - Challenges What are the policy objectives against which

performance is to be measured? E.g. financial sustainability, equity,

The selection of indicators used to monitor and evaluate performance

Calculation of indicators

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Criteria for Evaluation

Equity – fairness of distribution Horizontal equity – the need for the equal treatment of

equals Vertical equity – the unequal but equitable treatment of

unequals Must decide equity of what – inputs, access, utilization,

outcomes Wagstaff, Van Doorslaer and Kutzin argue that equity in

health financing relates to payment according to ability and treatment according to need

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Efficiency

Allocative efficiency – Asks are we doing the right thing? Focus on prevention, focus on primary care, essential packages

Technical efficiency – Asks what is the optimal combination of resources in anyone activity to produce maximum output or minimum costs

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Recent trends

Trend towards greater accountability for government spending

Aid effectiveness

Greater links between planning and budgeting

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Achieving value for Money (VFM) The optimal us of resources to achieve the

intended outcomes

“Assessing whether the level of results achieved represent good value for money against the costs incurred: moving from results to returns” (OECD, 2010)

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VFM Questions

What are the goals of the health system? What resources are required to meet the objectives

and outcomes? Are we using resources well to produce services? Are we using services well to produce better health

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VFM relationship

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Strategies for VFM 1.

Moving towards best practice in-order to a get efficiency gains;

Reinforcing priority setting; Ensuring that different administrative levels

understand their responsibility and accountabilities; More balanced provider schemes, for instance

between performance related pay and set wages;

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Strategies for VFM 2.

Targeting spending on quality of care issues; Better quality and pricing information to users so

that they can make informed decisions; and More stringent gate keeping in-order to reduce the

number of consultations and referrals to more expensive levels of service delivery.

Using health technology assessment and other priority setting tools

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Sustainability 1 First, increases in health spending due to factors

affecting demand for and supply of health services – among them, technological progress, demographic change and consumer expectations.

Second, resource constraints relating to government inability or unwillingness to generate sufficient resources to meet its health system obligations – an issue which takes on particular relevance in the current context of financial crisis. This is the issue of fiscal sustainability or fiscal balance.

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Sustainability 2

Third, health spending is rising as a proportion of gross domestic product (GDP). If this spending grows at a faster rate than spending in other parts of the economy, and therefore consumes an ever greater share of GDP, there is a concern that at some point it will eventually ‘crowd out’ expenditures on other goods and services that provide welfare gain. This is the issue of economic sustainability. The challenge in each case relates to the ability and willingness to pay for health care in the face of rising costs and resource constraints. (Thomson et. al 2009)

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Financial sustainability and cost containment Sustainability – Is the current approach to financing

sustainable? Is the proportion of the government budget increasingly being consumed by the health sector

Cost containment – Is the rate of growth in total costs falling?

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Critical functions of health financing Revenue collection

The process by which the health system receives money from different sources, relating to generation of resources and accessibility of health services for the population

Revenue pooling The accumulation and management of revenues from

individuals to share risks Purchasing

The process by which pooled contributions are used to pay providers to deliver specific health services

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Mixed Financing Systems

No system in the world has a single system. Most health systems are a blend of different

financing mechanisms A health system is made up of users, payers,

providers and regulators The financing of the system can be defined in terms of

the relationship between the different actors

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Financing Health Care in Canada

Federal System – 10 Provinces and 3 Territories Federal Government is responsible for:

Setting and administering national principles for the health care system through the Canada Health Act

Assisting in the financing of provincial/territorial health care services through the Canada Health Act

Delivering health services to specific groups (e.g. First Nations and Inuit and Veterans)

Providing other health-related functions such as public health and health protection programs and health research

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Financing Health Care in Canada Federal Government provides direct expenditures on health to:

First Nations and Inuit People Eligible Veterans, Refugee Protection Claimants Inmates of Federal Penitentiaries Serving Members of the Canadian Armed Forces and the

Royal Canadian Mounted Police

Equalization payments enable provinces to provide reasonably comparable levels of public services at reasonably comparable levels of taxation.

The three territories receive additional federal support through Territorial Formula Financing to assist them in providing public services

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Total Health Expenditures by Use, Canada, 2009

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Provinces and Territories

Provinces have jurisdiction over many public goods such as health care, education, welfare and intra-provincial transportation (Constitution Act, 1867)

Territories have no inherent jurisdiction and only have those powers delegated to them by the Federal Government

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Table 1 . 1975 in Millions

Percentage 2009 in Millions

Percentage

Provincial/Territorial Government

8,709.3 93.6 118,900.5 92.1

Federal Direct 389.3 4.3 6, 871.9 5.3Social Security Funds*

121.1 1.3 2,378.2 1.9

Municipal Government

71.6 0.8 938.8 0.7

Total Exp. 9,300.3 100.0 129,089.4 100.0

Table 1 Distribution of Public Sector Health Expenditure by Source of Finance, 1975 and 2009

Source: National Health Expenditures Database, Canadian Institute for Health Information

Notes: * includes workers compensation boards and premiums to the Quebec Drug Insurance Fund

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Health Care Expenditures In 2009 public and private spending was an estimated $162.1

billion. In 2009 public sector spending was 129.1,136.9 in 2010, 141.0 billion in 2011.

Private sector 53.0 billion in 2009, 56.0 in 2010 and 59.5 in 2011.

11.9 percent of Gross Domestic Product in Canada in 2009 (In USA … 2009, 17.4 of Gross Domestic Product; Per capita $ 8160) Per capita health expenditure: $ 5,401 in 2009 and forecasts for

2010 and 2011 are expected to be $ 5, 654 and $ 5, 811 respectively

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Table 2 Health Expenditure Summary by Province/Territory and Canada, 2011, Province/Territory Expenditure per capita Expenditure as % of GDP

Newfoundland and Labrador 6, 884 11.7 Prince Edward Island 6,115 17.2 Nova Scotia 6,288 15.6 New Brunswick 6,358 15.6 Quebec 5,261 12.4 Ontario 5,792 11.9 Manitoba 6,463 14.2 Saskatchewan 6,421 10.1 Alberta 6,570 8.6 British Columbia 5,450 11.6 Yukon Territories 8,996 12.4 Northwest Territories 10,242 8.8 Nunivak 11,929 21.3 Canada 5,811 11.6

Source: National Health Expenditure Database, Canadian Institute for Health Information

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Types of Health Care Funding in Canada 1. Hospital Funding:

Line by line ….. Negotiating amounts for specific line items (or inputs) such as; inpatient nursing services, or medical surgical supplies (used in British Columbia and New Brunswick)

Positive – funding can be directed towards policy greater degree of predictability

Negative – reallocation among lines not easy, reduces flexibility

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Types of Health Care Funding in Canada 2. Ministerial Discretion:

Funding based on decisions made by the Provincial Minister of Health in response to a specific request by the hospital concerned (Manitoba, Nova Scotia, Prince Edward Island and Newfoundland)

Positive – Subjective and flexible Negative – Can be myopic (political, inconsistent and not

predictable)

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Types of Health Care Funding in Canada 2. Population-based:

Uses demographic information such as: age, gender, socio-economic status, and mortality rates to forecast the demand for hospital services

Alberta and Saskatchewan use population-based funding as their primary methods

British Columbia and New Brunswick use it in combination with line-by-line budget approach

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Questions

What are the values that drive the Canadian Health Care System?

How do these values affect the financing of the health system? Is the current method of financing the Canadian Health Care

System sustainable? How does politics, Provincial and Federal, affect the type and

level of financing? What role do you think the Federal Government should play? What role does civil society play in financing?

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References 1

Carrin G. Health Systems Policy, Finance, and Organization Health Care in Canada, Canada Institute for Health Information, 2008. Raisa B. Deber, “Who wants to pay for health care” Canadian Medical

Association Journal, July 11, 2000;163(1) Robert G. Evans, Economic Myths and Political Realities – The Inequality

Agenda and the Sustainability of Medicare, July 2007, University of British Columbia

Judith Maxwell et.al. Commission on the Future of Health Care in CanadaReport on Citizens’ Dialogue on the Future of Health Care in Canada, June 2002

Canadian Institute for Health Information , 2008. Health Care in Canada

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References 2

Sarah Thomson, Tom Foubister, Joseph Figueras, Joseph Kutzin, Govin Permanand, Lucie Bryndova, “ Addressing Financial Sustainability in Health Systems” World Health Organization, 2009.

OECD, “Health System Priorities When Money is Tight”, OECD Ministerial Meeting Paris, 7 – 8 October 2010

Health Council of Canada, “Value for Money: Making Canadian Health Care Stronger’, February 2009

Peter C. Smith “Measuring value for money in health care: concepts and tools”, Centre for Health Economics, University of York, September 2009.