Health Finance Reforms in Southern Europe: Lessons from Croatia European Health Forum September 27, 2002 Akiko Maeda, Lead Health Specialist The World Bank

Health Finance Reform in Southern Europe – Unfinished Agenda  Evolution of Croatian Health Financing System examined for effectiveness in: –Revenue mobilization –Risk pooling and redistribution –Expenditure management  Effectiveness of the new reform initiatives

Measuring Health System Performance Revenues /Inputs Redistributive (prog./reg.)Redistributive (prog./reg.) Administrative EfficiencyAdministrative Efficiency Risk-pooling/ managementRisk-pooling/ management Health Services Throughputs Allocative EfficiencyAllocative Efficiency Microecon. efficiencyMicroecon. efficiency Efficacy/ EffectivenessEfficacy/ Effectiveness Health Outcomes AggregateAggregate Disease specificDisease specific Socio- economic factorsSocio- economic factors

Croatian Health Financing System – Last decade  Croatia: 1993 Health Reforms established the foundations of the current health financing system: –Consolidation of fragmented public financing under a single fund (Croatian Institute of Health Insurance - HZZO) –Establishment of revenue source from high payroll tax rate –Broad categories of exemptions, generous benefits including sick /maternity leave

Health Finance Reform in Croatia – Unfinished Agenda  Croatia: 1993 Health Reforms on provider system –Legislation establishes private providers and private insurance market –New provider payment systems: capitation for primary care practices point system for specialists/ combined per diem / fee for service for hospital

Croatian Health Finance Reform – Unfinished Agenda  A decade after the first round of reforms,Croatia continues to face high cost of care –Health expenditures (accrual basis) estimated at 9% of GDP, US$400 per capita –Persistent recurrent deficits and growing arrears of the Croatian Institute of Health Insurance (19% of revenues in 2002) –High payroll tax rate adds to labor costs

Health Expenditure Trends in Central Eastern Europe and Newly Independent States, 1998

Croatia Health Finance – Managing Risk Pooling and Redistribution  Managing risk pooling and redistribution: –Broad exemptions on copayments and premiums results in untargeted subsidies –Central budget transfers made retroactively to cover deficits –Actuarial analysis needed to estimate impact of the projected changes in the beneficiary composition, contribution levels and expected health service utilization rates

Croatia Health Finance – Managing expenditure  Provider payment systems do not encourage efficiency or quality: –GP capitation system does not provide incentives to rationalize referrals or drug prescriptions –Point system for physician reimbursement encourages cost escalation among specialists –Point-based hospital payment system does not encourage efficiency

Croatia Health Finance – Managing Expenditure  Cost Containment Measures 1999 – 2002 –Global capping of hospital budget and reduction in hospital bed capacity –Introduction of partial case-based payment systems –Restriction on number of prescriptions per beneficiary, introduction of drug reference price –Restriction on number of referrals per beneficiary

Croatia Health Finance – Managing Expenditure  Initial Results of Cost Containment Measures –Hospital expenditures contained, but with growing waiting lists –Restrictions on referrals and prescriptions not effective in controlling volume and cost of services raises quality and equity concerns

Croatia Health Finance Reform Initiatives 2002

 Revenue base –Consolidation of budget under Treasury: improve collection compliance and debt management –Payroll tax rate reduced from 18 to 16% –Increase in copayment rates –Introduction of “Supplementary Health Insurance”

Croatia Health Finance Reform Initiatives 2002  Improved targeting and risk pooling? –Central and local government contributions are more clearly linked to benefits and target population –But exemptions remain broad –Estimation of costs not based on actuarial analysis

Health Insurance Act 2002  “Supplementary Health Insurance” –Provides complementary financing to cover copayments for services covered under the statutory health insurance –Primarily viewed as an instrument for raising revenues –Tax exemptions and discounts on premiums given to pensioners as inducements –Private health insurers are kept out of the SHI market until 2003

Health Insurance Act 2002  Issues with the new “Supplementary Health Insurance” –Moral hazard - undermines the demand moderating effects of copayments –Selection bias – high risk groups likely to purchase SHI, encouraged by discounts given to the high risk groups (pensioners)

Health Insurance Act 2002  Net effect of “Supplementary Health Insurance”: –Increased spending may not be compensated by additional SHI subscriptions –Negative equity impact: only those who can afford to pay SHI will receive extra coverage –Private insurers will likely cherry-pick beneficiaries when the market is opened in 2003

Next Steps in Health Finance Reform  Focus on improving macro and microeconomic efficiency on the provider side by aligning incentives to improve productivity and quality of care  Target subsidies better and provide better protection for vulnerable groups  Revenues – reduce burden on payroll tax, improve allocation of general revenues from central and local governments