Joe Kutzin

Es coordinador de financiamiento en salud en la Organización Mundial de laSalud (OMS). Obtuvo su Maestría en Economía del Desarrollo en laUniversidad de Boston en 1985 y recibió un Doctorado Honorario de laUniversidad Semmelweis en Budapest en 2012. Es un economista de la saludque comenzó su carrera en Jamaica y ahora cuenta con más de 30 años deexperiencia en reformas de sistemas de salud, trabajando en países deÁfrica, Asia, el Caribe y Europa. Ha estado en la OMS durante más de 20años, prestando servicios en la sede central, en Kirguistán como asesor depolíticas del Ministerio de Salud, y en Copenhague y Barcelona como Asesorde la Región de Europa en Financiamiento en Salud. Fue colaborador delInforme sobre la salud en el mundo 2010 en el área de financiamiento de lacobertura universal y ha publicado numerosos artículos conceptuales yempíricos sobre financiamiento de la salud y Cobertura Universal, incluidocomo autor principal de un capítulo sobre lecciones aprendidas de laexperiencia con reformas financieras para avanzar hacia la CoberturaUniversal. El equipo que dirige en la OMS brinda orientación, servicios deasesoramiento sobre políticas, desarrollo de capacidades y trabajo técnicosobre compras estratégicas, monitoreo y seguimiento de gastos en salud ycuestiones de (des)alineación entre el financiamiento de la salud y la gestiónfinanciera del sector público.

Coordinador, Política de Financiamiento de la Salud, Organización Mundial de la Salud (OMS), Ginebra Suiza

Financing reforms for Universal Health Coverage: from theory to practice

Joseph Kutzin | Coordinator, Health Financing | Health

Systems Governance and Financingwww.who.int

VIII Congreso de Economía de la Salud de América Latina y el Caribe y en el VI Congreso de la Asociación

Colombiana de Economía de la SaludMedellin, Colombia. 1-3 October 2018

Need for core concepts to set direction for where we want to go (normative), and understand from where we are starting (positive) and explore options

• Draws on (a) thinking like a health economist, and (b) early thinking from LA (functional approach from Frenk, Londono and Frenk)

Operationalizing UHC – moving towards

Health financing functional approach

Guiding principles – health economics and what we know from practice

Overview/outline

Fis

cal co

nte

xt

Three pillars for approaching health financing policy

Desc

rip

tive

fram

ew

ork

Po

licy

ob

ject

ives

Health financing policy analysis and

viable options for reform

Starting point, direction, and reality check

Where should

we go?

(normative)

Where are we

starting from?

(positive)

What kind of vehicle

can we afford to get

us there? How far and

how fast?

(sustainability)

Normative: operationalizing UHC as a basis for public policy

All countries should seek to ensure that their

populations get the health services they need,

of good quality, without fear of the financial

consequences of paying for these services.

UHC as a normative proposition

Difficult if not impossible to have a sensible public policy discussion without consensus around what it is you are trying to achieve

Operationalize UHC as a direction, not a destination

• Reduce the gap between need and utilization (equity)

• Improve quality

• Improve financial protection

But even if this is accepted, normative question for each country remains: by how much to make these improvements, and at what cost? Answers to these depend on what is socially/politically acceptable – not something that an international agency can answer for a country.

Assuming general agreement on the basic normative proposition…

Coverage as a “right” (of citizenship, residence) rather than as just an employee benefit

• Critically important implications for choices on revenue sources and the basis for entitlement

Unit of analysis: system, not scheme

• Effects of a “scheme” is not of interest per se; what matters is the effect on UHC goals considered at level of the entire system and population

• Critical in the context of segmentation

An explicitly political agenda…because it involves redistribution

Public policy implications of this normative proposition

Positive: Health financing from a functional perspective

How to think about health

financing and the instruments of

reform

Functional approach to health systems

• Frenk (1995). “Comprehensive policy analysis for health system reform.” Health Policy 32: 257-277

• Londoño and Frenk (1997). “Structured pluralism: towards an innovative model for health system reform in Latin America.” Health Policy 41:1-36

Emerged in response to the segmented health systems within the region

• Perhaps a first example of thinking that went “from scheme to system”

Intellectual roots

Policy/political question:

•Why not organize the system by function rather than social group?

Technical response

• Functional description of health systems

It was a response to the segmented health systems of Latin America

Adapted from Frenk (1995)

Upper

incomePoor

Insured

Functions

Delivery

Financing

Stewardship

Uninsured

Ministry of

Health

Social

security

Private

sector

SOCIAL GROUPS

Applied to change thinking about health financing: from labels to functions

Revenue raising

Pooling

Purchasing

Benefits and co-payments

“National Health System”

“Social Health Insurance System”

“Mixed Systems”

Classifications or models Functions and policies

Understand systems (and reform options) in

terms of functions, not labels or models

Are German citizens more insured than British citizens, just

because they call their system “insurance”?

All systems can be analyzed in this way

C o v e r a g e

Source/

revenue

Pooling

Purchasing

Provision

Population

General tax revenues

of each Oblast

C o v e r a g e

USSR: duplication

Rayons Oblast

Local

Gov’t

Local

Gov’t

Local

Gov’t

MOH

MOH

MOH

poor middle rich

LA: segmentation

General

taxation

MOH

MOH

uninsured

MOH

Voluntary

contribution

VHI and OOPS

SHI

SHI

Payroll

taxation

SHI insured

SHI

SHI

Health financing for UHC: guiding principles derived from

theory (especially applied micro) and practice

Goal: move towards UHC

• Equity in use, quality, financial protection

• Assessed at the level of the system/population, not scheme and beneficiaries

Starting point:

• Existing health financing system, understood in functional terms, not models or labels

• Key contextual constraints (especially fiscal and public administrative structure)

Overall: separate ends and means

Combine normative and positive with theory and evidence

Even though broad UHC goals are shared by all…

• Specific manifestations of problems vary, so how the goals should be operationalized will vary as well

• Every country already has a health financing system, so starting point for each country is unique

•Mix of fiscal and other contextual factors also unique

But this should not be interpreted to mean that “anything goes” – we have learned a few things over past 30 years (or more)

• Some “do’s” and “don’ts” in health financing policy

•We can avoid repeating mistakes made by others

Message following WHR2010: the path to UHC should be home-grown

1. Focus on compulsory funding sources: move

towards predominant reliance on public funding

for UHC (tax, including mandatory contributions)

2. Reduce fragmentation to enhance re-

distributional capacity (more prepayment, fewer

prepayment schemes) and reduce administrative

duplication

3. Move towards strategic purchasing to align

funding and incentives with promised services,

promote efficiency and accountability, and

manage expenditure growth to sustain progress

WHO health financing: 3 policy principles to guide health financing reform(ers)

From theory

• Arrow (1963). “Uncertainty and the welfare economics

of medical care.” American Economic Review 53:941–

973.

• Akerlof (1970). “The market for “lemons": quality

uncertainty and the market mechanism.” Quarterly Journal of Economics 84:488-500.

We can’t ignore adverse selection and supplier-

induced demand

What do theory and health economists tell us?

Fuchs (1996). “What every philosopher should know about health economics.” Proceedings of the American Philosophical Society 140:186-196

• Section titled “Two necessary and sufficient conditions for universal coverage” (WHR 2010 in 3 paragraphs)

• Compulsion (funding from some type of tax, with the entire population in the pool)

• Subsidization (for those unable to contribute)

Grounded in understanding of adverse selection, backed by global evidence

Raising revenues for UHC: the Fuchs conditions

No country has made much progress by relying on voluntary prepayment/individual contributions

• Private voluntary health insurance, community-based health insurance, or informal sector contributions to national schemes

• We can’t just wish away adverse selection

In countries with large informal sectors, this will tend to mean reliance on general budget revenues to scale up coverage on a non-contributory basis (e.g. SIS in Peru, Seguro Popular in Mexico)

Revenue sources

Historical legacy in many countries which led

to “inequity by design”

Some relevant experiences from Europe and

elsewhere highlight that progressive change is

possible, even if politically difficult

Pool fragmentation: a critical issue for the region and beyond

Consolidation (merging)

• Baltic and Scandinavian countries and Poland in the 1990s (geographic consolidation of insurance funds or sub-national “purchasing” units)

• Turkey merged different public insurance schemes into one (formerly for different population groups)

Equalization (create a pool among the pools)

• Consumer choice among competing SHI funds (e.g. Czech, Germany, Netherlands), with risk-adjusted capitation to reduce risk of strategic pooling by insurers

• Balance (again, risk-adjusted) per capita resource base of non-competing territorial pools (e.g. UK, Sweden, Poland)

How European countries responded to multiple pools to mitigate fragmentation

Went for multiple insurers in early 90s (post USSR collapse)

Funding arrangements

• Employer-employee contributions

• Budget transfers on behalf of non-working people

Risk selection behavior by insurers led to financial problems for company that served most of population (elderly, non-working)

Introduced limited and crude risk-adjustment in 1994, but problems remained for many years

Reducing fragmentedpooling in a multi-payersystem: the Czech reforms

Incomplete pooling

•Only 60% of contributions subjected to

adjustment, together with budget transfers

Crude methods: insurers received 3x as much

per enrollee for persons over 60 years old

Risk adjustment before reforms introduced

OPPORTUNITIES FOR CREAM SKIMMING IN THE CZECH SYSTEM

BEFORE INTRODUCTION OF THE NEW RISK-ADJUSTMENT MECHANISM

Source: VZP; insurers’ annual reports

CZK in 2002

0

5 000

10 000

15 000

20 000

25 000

30 000

35 000

40 000

0 20 40 60 80

Average annualhealth care cost

Annual income per

economically non-

active insured

Age

Created one national pool

•100% of contributions subjected to adjustment,

together with budget transfers

Increased the sophistication of the risk

adjustment method

•36 age/sex categories, ex post partial

compensation of expensive cases

Risk adjustment reformsphased in over 2004-06 period

Pooling arrangements in Czech Republic prior to reform

Insured population

Co

ver

age

contracts

Source

Pooling

Purchasing

Provision

Population

Central budget revenues

(on behalf of non-working population)Payroll taxes

Health care providers

VZP

redistribution mechanism

other health insurers

40%60%

A virtual single pool createdby the 2003 reforms

Insured population

Co

ver

age

contracts

Source

Pooling

Purchasing

Provision

Population

Central budget revenues

(on behalf of non-working population)Payroll taxes

Health care providers

VZP

redistribution mechanism

other health insurers

3rd principle: you can’t just spend your way to UHC

Efficiency is central, but it won’t just happen by magic

Theory, again

• In well-functioning markets, unmanaged interactions between buyers and sellers would lead to an efficient result. But we don’t go for diagnostic tests or hip replacements because they are on sale…

• From Arrow and those who followed, e.g.

• Labelle, R, G Stoddart, T Rice (1994). “A re-examination of the meaning and importance of supplier-induced demand.” Journal of Health Economics 13:347-68.

• Fahs, MC (1992). “Physician response to the United Mine Workers' cost-sharing program: the other side of the coin.” Health Services Research 27:25-45.

Influencing provider behavioris key to drive efficiency gains and sustain progress

Strategic purchasing: linking payment to data on provider performance and the health needs of the population they serve

•Moving away from extremes of unmanaged fee-for-service or input-based line budgets with no provider autonomy

Recognizing and regulating out the potential for conflict-of-interest that can magnify consequences of supplier-induced demand (e.g. physician-owned diagnostic centers)

Fahs 1992 study in US (Pennsylvania):

• physician practice with two groups of insured patients

• Cost-sharing introduced for one, and their use fell

• In response, intensity of use by the other group of patients increased

China vs Thailand

• Both greatly increased public spending and affiliation to health insurance programs

• In Thailand, service use and financial protection improved due to coherent provider payment policies that managed spending growth.

• NOT the case in China

Supplier-induced demand and payment systems (evidence confirms theory)

Chinese Public Hospitals: “perfect alignment” of wrong incentives

All staff of the hospital are investors in the CT

scanner with objective to maximize its use

Source of slide: Prof. Winnie Yip

Final reflections

The analysis of how key interactions (patient-provider, person-insurer) deviate from standard market assumptions is at the core of key policy messages that are borne out by real-world experience

Practical application to health systems, particularly in Latin America, has helped us to move from models to functions, and from schemes to system

Health economics offers relevant insights

Public funding matters

• No country has made significant progress towards UHC without predominant reliance on some form of tax or compulsory contribution, due to reality of adverse selection

Reducing fragmentation is critical for both equity and efficiency objectives

• In particular to deal with a segmented context

• No one size fits all – countries have had success and failure with “single payer” and competition within a managed compulsory insurance market: implementation, not model

Towards more strategic purchasing

• Essential for system purchaser(s) to actively manage the allocation of resources to providers – it won’t just happen

And key messages for policy