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Division of Health Systems & Public Health
Adapting revenue policies to health needs and
expenditure projections
Tamás Evetovits & Sarah Thomson WHO Barcelona Office for Health Systems
Strengthening
OECD meeting of the Joint Network on Fiscal Sustainability of Health Systems, 16-17 February 2015
Stable and predicatble revenues for health – growing or not
Sustainable public financing for health
The dialogue needs to continue
Outline
While health has taken an increasing share of public spending in high income countries (pre-crisis), it is not the case in less developed countries of the WHO European Region
Source: WHO NHA database, 2012
14.4% 13.7%
WHO and European Observatory joint study on the crisis http://www.hfcm.eu
Policy summary
The financial crisis reminded us of the importance of counter-cyclical spending on health
• Health systems always need stable revenues
• In an economic crisis public funding levels should increase as household incomes fall:
– means-tested entitlement to public services
– greater need for health services
– people substitute public services for private
Policy options for health when government revenues fall
Cut spending to match revenue
• Doing nothing as government revenues fall
• Targeting the health budget for cuts to achieve fiscal consolidation objectives
Find additional revenue
• Deficit financing
• Countercyclical mechanisms
• Reallocation across government
• New earmarking
• New taxes
Get more out of available revenue
sources
• Enforce collection
• Lift contribution ceilings
• Abolish pro-rich tax subsidies
• Broaden public revenue base
Public spending on health fell disproportionately in many countries
Source: WHO NHA database, 2013
-30
-20
-10
0
10
20
30
40
50
Arm
enia
Latv
iaIre
land
Aze
rbai
jan
Mon
tene
gro
Kyr
gyzs
tan
Turk
men
ista
nLu
xem
bour
gIc
elan
dC
roat
iaP
ortu
gal
Gre
ece
Ukr
aine
Slo
veni
aS
pain
fYR
Mac
edon
iaD
enm
ark
Slo
vaki
aN
orw
ayLi
thua
nia
Finl
and
Mal
taR
ussi
an F
eder
atio
nFr
ance
San
Mar
ino
And
orra
Rom
ania
Hun
gary
Ser
bia
Net
herla
nds
Uni
ted
Kin
gdom Ita
lyB
elgi
umG
erm
any
Isra
elP
olan
dTu
rkey
Aus
tria
Sw
eden
Est
onia
Cze
ch R
epub
licC
ypru
sA
lban
iaB
ulga
riaS
witz
erla
ndR
epub
lic o
f Mol
dova
Uzb
ekis
tan
Bos
nia
Her
zego
vina
Mon
aco
Geo
rgia
Kaz
akhs
tan
Bel
arus
Tajik
ista
n
Pro-cyclical public spending on health
Change in the health share (%) of total government spending, 2007-2011
Not about tax-financed NHS vs earmarked SHI
Source: WHO NHA database, 2013
-30
-20
-10
0
10
20
30
40
50
Arm
enia
Latv
iaIre
land
Aze
rbai
jan
Mon
tene
gro
Kyr
gyzs
tan
Turk
men
ista
nLu
xem
bour
gIc
elan
dC
roat
iaP
ortu
gal
Gre
ece
Ukr
aine
Slo
veni
aS
pain
fYR
Mac
edon
iaD
enm
ark
Slo
vaki
aN
orw
ayLi
thua
nia
Finl
and
Mal
taR
ussi
an F
eder
atio
nFr
ance
San
Mar
ino
And
orra
Rom
ania
Hun
gary
Ser
bia
Net
herla
nds
Uni
ted
Kin
gdom Ita
lyB
elgi
umG
erm
any
Isra
elP
olan
dTu
rkey
Aus
tria
Sw
eden
Est
onia
Cze
ch R
epub
licC
ypru
sA
lban
iaB
ulga
riaS
witz
erla
ndR
epub
lic o
f Mol
dova
Uzb
ekis
tan
Bos
nia
Her
zego
vina
Mon
aco
Geo
rgia
Kaz
akhs
tan
Bel
arus
Tajik
ista
n
Pro-cyclical public spending on health
Change in the health share (%) of total government spending, 2007-2011
Level of public spending on health is highly dependent on governments’ priority to health
Pub
lic s
pend
ing
on h
ealth
as
% a
ll pu
blic
spe
ndin
g
Source: WHO 2014
Lessons from the Baltics: counter-cyclical mechanisms are critical
Latvia
• Tax funded health system was cut more than other sectors under fiscal pressure of similar mag-nitude to LTU and EST
Estonia
• HIF reserves could have covered decline in payroll tax revenue: use of reserves was modest as fiscal balance got priority
Lithuania
• Highly effective formula-based budget transfers to compensate for lower payroll tax revenue secured stable revenue for health
Unmet need due to cost among the poorest quintile: countries with > 1 percentage point increase, 2008-2013 (and LTU)
Source: EU-SILC
The “successful” fiscal adjustment program in Latvia: how much inequity is “sustainable”?
%
02468
10121416182022242628
2008 2009 2010 2011 2012 2013
LatviaGreeceItalyCyprusPolandIcelandFranceBelgiumPortugalLuxembourgIrelandLithuaniaSpain
Estonia was well prepared but prudence in the health sector was used to balance the government budget
Source: T. Habicht, EHIF, www.haigekassa.ee
Lithuania’s formula for budget transfers ensured public funding levels were stable
Source: Jowett et al in Thomson et al 2014
Beveridge vs Bismarck? Lithuania is setting a new standard in the Baltics and beyond
Tax-financed (Latvia): unpredictable annual allocation decisions make stakeholders argue for earmarking
SHI: exclusive reliance on earmarked payroll tax is unsustainable in the long run (message for Estonia)
Lithuania: balanced revenue mix of payroll tax and budget transfers with counter-cyclical mechanisms
Counter-cyclical revenue for health is good for sustainability
It helps maintain spending levels when it is most needed i.e. during a
downturn
It helps contain growth in health spending during
economic prosperity
Sustainable public financing for health
Broadening the revenue base
Reducing reliance on social insurance
contribution by using general tax
Sin taxes may have an increasing but
modest role
Increasing efficiency of spending and
improving targeting for equity
Income tax is usually more progressive than social contributions
Source: Verbist and Figari 2014
Sou
rce:
Võr
k (2
009)
, Inc
ome-
rela
ted
ineq
ualit
y in
hea
lth c
are
finan
cing
and
hea
lth
care
util
isat
ion
in E
ston
ia 2
000-
200,
Tal
linn:
Pra
xis
Cen
ter f
or P
olic
y S
tudi
es
-0.4
-0.3
-0.2
-0.1
0
0.1
0.2
0.3
Payroll tax
Income tax
VAT Tobacco tax
Alcohol tax
OOPs
Distributional effect of different revenue collection mechanisms
Progressive
Regressive
Indirect taxes Direct taxes
Is more private financing the answer to fiscal sustainability concerns?
Is it feasible?
Will VHI markets develop to address gaps in coverage and minimise OOPs?
Is it desirable?
0
10
20
30
40
50
60
70
80
90
100
Cze
ch R
ep UK
Den
mar
kJa
pan
Aus
tria
Luxe
mbo
urg
New
Zea
land
Net
herla
nds
Ger
man
yS
love
nia
Fran
ce
Slo
vaki
aE
ston
iaS
wed
enTu
rkey
Finl
and
Bel
gium
Spa
inA
ustra
liaIre
land
Can
ada
Hun
gary
Gre
ece
Por
tuga
lS
witz
erla
ndIs
rael
Chi
le
Mex
ico
Rep
of K
orea
PHI Other private
PHI generally accounts for a small share of private spending on health
Source: WHO GHO 2015
% p
rivat
e sp
endi
ng o
n he
alth
OOPs <15% TEH 15-24% 25-34% 35%+
More PHI does not mean less OOP
Source: WHO GHO 2015
AUT
BEL
BUL
CYP
CZE DEN
EST FIN
FRA
GER
GRE HUN
IRE
ITA
LAT
LIT
LUX
MTA
NET
POL
POR
ROM
SLO
SPA
SWE
UK
0
10
20
30
40
50
60
0 2 4 6 8 10 12 14 16
OO
Ps
% to
tal h
ealth
spe
ndin
g
PHI % total health spending
But less public spending does mean more OOPs
Source: WHO GHO 2015
R² = 0.5815 0
10
20
30
40
50
60
70
80
0 1 2 3 4 5 6 7 8 9
OO
Ps
% o
f tot
al s
pend
ing
on h
ealth
Public spending on health as % GDP
Lowering public spending on health is a poor solution to fiscal
sustainability
When OOPs are more than 15% of TEH, we begin to see catastrophic spending by
poorer households
„Improving efficiency is a far better option than cutting back on services or imposing fees that punish the poor” (Margaret Chan, WHO DG)
Efficiency gains are part of the solution…
…but efficiency gains alone are NOT the solution
The dialogue needs to continue
Health: Give us more money, we know how
to spend it well.
Finance: Improve efficiency first and
then we may give you more
Focus on spending more efficiently
Acknowledge fiscal constraints
Growth in health spending is to stay and
it is not a bad thing Acknowledge equity implications of OOPs
Fiscal sustainability is meaningless if not linked to public policy objectives
WHO Barcelona Office for Health
Systems Strengthening
Established in 1999 Supported by the Government of the
Autonomous Community of Catalonia, Spain Focuses on health systems financing:
analytical work and capacity building Staff work directly with Member States across
the European Region Part of the Division of Health Systems &
Public Health of the WHO Regional Office for Europe www.euro.who.int
Contact us: Sant Pau Art Nouveau Site
Nostra Senyora de La Mercè pavilion Sant Antoni Maria Claret 167
08025 Barcelona, Spain Email: [email protected]