Financing health care: A framework for analysis ELIAS MOSSIALOS LSE HEALTH & SOCIAL CARE

Functions of health systems Revenue Collection Fund pooling Purchasing Financing Provision Personal health services Non-personal health services STEWARDSHIP RESOURCE GENERATION WHO Bulletin of the World Health Organisation 78 (6) 2000 p724

Revenue collection “the mobilization of money from primary sources (households and firms) and secondary sources (governments and donor agencies)” Murray, C.J. and J. Frenk, A framework for assessing the performance of health systems. Bulletin of the World Health Organisation, 2000. 78(6): p. 717-731

COLLECTION AGENT SOURCE MECHANISM Government Taxes Government Compulsory insurance contributions Voluntary insurance premiums Medical Savings Accounts Out-of- pocket payments Households Government Providers Private non- profit/ for- profit bodies Independent public body Firms Banks/ donor agencies Loans/ grants/ donations

“accumulation of revenues for the common advantage of participants” Fund pooling “accumulation of revenues for the common advantage of participants” Murray, C.J. and J. Frenk, A framework for assessing the performance of health systems. Bulletin of the World Health Organisation, 2000. 78(6): p. 717-731

Purchasing “process through which revenues…are allocated to institutional or individual providers to deliver a set of interventions” Murray, C.J. and J. Frenk, A framework for assessing the performance of health systems. Bulletin of the World Health Organisation, 2000. 78(6): p. 717-731

TF + CI + UC + VI = W x Z = P x Q TF = taxes CI = compulsory insurance contributions UC = user charges and out-of-pocket payments VI = voluntary insurance premiums W = quantity and mix of inputs Z = price of inputs P = price of goods and services Q = quantity of goods and services

Evaluation “Evaluation is the systematic assessment of the operation and/or the outcomes of a program or policy, compared to a set of explicit or implicit standards as a means of contributing to the improvement of a program or policy” Weiss, C. H. Evaluation. New Jersey, Prentice Hall, 1998 p4

Objectives Final goals Instrumental goals health status fair financing responsiveness Instrumental goals affordability equity accessibility sustainability quality

Fair financing financial protection against the costs of ill-health fair distribution of the burden of payment for health care i.e. the costs are related to the ability to pay rather than to the risk of illness

Increasing financial protection Point of service Co-payment under public/private insurance Under the counter payment Full direct payment for services not covered Medical Savings Account Pre-payment Social health insurance contributions Tax payments (direct and indirect) Private health insurance premiums

Proportion of tax and SHI as % THE in western Europe 10 20 30 40 50 60 70 80 90 100 SHI % THE Tax % THE UK POR GER FRA SWE NET GRE SPA DEN SWI ITA BEL Cluster A Cluster C Cluster B

Proportion of tax and SHI as % THE in ECA countries 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% % of health revenues from general tax % of health revenues from social insurance Cluster C Cluster A Cluster B LAT KAZ AL ROM KY GE AZ PO MO HU CZ CR RU SL ES SK

Proportion of tax revenue from different sources

People on whatever income pay proportionate amount of their income Vertical Equity +1 People with high incomes pay proportionately more of their income than those with low incomes Progressive People on whatever income pay proportionate amount of their income Regressive People with high incomes pay proportionately less of their income than those with low incomes -1

Horizontal Equity Dispersion Even Uneven People with the same level of income pay the same amount People with the same level of income pay different amounts Income related social insurance contributions Variable contribution rates to social insurance funds Risk rated private insurance premiums User charge exemptions for non-means tested groups Income tax Direct taxes Tax deductions on VHI User charge with means tested exemption Regional/ local taxes Dispersion Even Uneven

Institutional capacity External pressures War EMU IMF EU Directives and legislation Institutional capacity Demographic profile Ageing population Dependency ratio Household structure Urbanisation Revenue Potential Economic activity Corruption Debt Labour market structure Unemployment Informal economy Technical capacity Social values Conflicting expenditure priorities government vs. individual responsibility Support for welfare state Trade unions

INSTITUTIONAL CAPACITY Power of interest groups Rules and regulations Management practices Corruption Revenue Potential Actual Revenue TECHNICAL CAPACITY IT Human resources Management Systems Communications

GDP per capita in ECA countries ($PPP) 1997

% Change in real GDP 1990–97

Black Market Index

Corruption Perceptions Index The challenge then is how can countries which depend so heavily on point of service payments move towards establishing systems of pre-payment. One choice is a strategy based on the growth of private voluntary insurance schemes – an option that may well be supported by better-off members of the population. However this will only exacerbate inequities in financing and access, leaving large parts of the population, usually the poor and sick, without any protection p42 . The alternative strategy is to build a system of prepayment through a combination of compulsory insurance and taxation. Developing a pre-payment system in this environment means linking employment-based, municipal or community insurance schemes . The important thing is that these can all be strengthened and developed into horizontally integrated systems, where there is universal coverage. The fragmented systems of coverage which persist in many South American countries undermine equity p727 . However, it seems inevitable that for some time at least there is likely to be a mix of revenue sources. In order to overcome the resultant fragmentation and associated inequities and inefficiencies the government must provide a strong health policy framework and targeted subsidies to the poor .

Structuring and regulating the supply side Unanswered questions Make or buy? Structuring and regulating the supply side Managing the interface between government payer and provider agencies Defining benefits and beneficiaries Terms of access to care Having raised the revenue, do governments also provide the services, or do the contract for care – on what terms? – from other providers external to government? – the spectrum from government departments through QUANGOs, not-for-profit organizations and independent professionals to for-profit firms. : In-house to arm’s length – and how short an arm? : How wide is the net and who decides, in principle or in practice? : choices over amounts and types of capacity to provide, in what locations, and what characteristics of patients shall be the basis for priority setting. Some or most of these decisions may be delegated to providers