Key issues in health care financing Di McIntyre

Objectives Introduce some key concepts Introduce a useful analytic framework Illustrate the analytic framework with some LMIC experience

Financial protection Ensuring that no household is impoverished because of a need to use health services

Universal coverage A health system that provides all citizens with adequate health care at an affordable cost

Equitable financing Contribute according to ability-to-pay and benefit according to need (capacity to benefit)  Cross-subsidies: Income cross-subsidies (rich to the poor) [proportional or progressive?] Risk cross-subsidies (healthy to the ill) Cross-subsidies in overall health system

Other key considerations Efficiency: Level of revenue generation Costs of revenue collection & administration Promotes technical & allocative efficiency Sustainability: Stability Ability to expand over time Feasibility

Framework (Kutzin) Revenue collection Pooling of funds Purchasing

Revenue collection Sources of funds: Balance between external & domestic sources Balance between companies & individuals Contribution mechanisms: Structure of contributions Type of collecting organisation

Contribution mechanisms General taxes: Direct taxes usually progressive, particularly in LMICs Indirect taxes usually regressive, but slightly progressive in some LMICs Share of these taxes determines overall progressivity of tax revenue Key issue: Fiscal space to increase spending on health care (debt burden)

Contribution mechanisms Private voluntary health insurance: If major component of funding, tends to be regressive If ‘top-up’ and in many LMICs, ‘progressive’ (only the rich contribute, but also benefit) Mandatory health insurance: Depends on structure of contributions (flat amount or flat % contribution, maximum cap  tends to be regressive

Pooling of funds Objective: Difficult to predict risk of an individual falling ill, but easier for a large group (pooling or spreading risk) Key issues: Coverage and composition of risk pool: Size of the population and the socio- economic status of groups covered Mechanisms to allocate resources from pooling to purchasing organisations

Risk pool Out-of-pocket payments and medical savings accounts allow no pooling (outside household) Single, universal pre-payment funding mechanism maximises risk pool Fragmented pools: Sustainability and equity problems (reinsurance) People ‘fall through the cracks’

Expanding risk pools Voluntary or social health insurance  national health insurance: Level of income & economic growth rate Size of formal sector and urban population Level of social solidarity Resistance by those currently covered (changes in benefit package, contribution rates, etc.) Opting out

Allocation mechanisms Risk-equalisation between different insurance schemes: Risk profile of each scheme (age, gender, chronic illness, etc.) Risk-adjusted capitation to cover costs for standard benefit package Needs- based allocation of tax (and donor) funds

Tax & SWAP OOP user fee revenue CBHI contributions Matching govt. grant SHI reimbursements Global Fund ARV Rural districtUrban district Systemic view

Purchasing Choice of benefit package: Which services: low-frequency & high-cost; high-frequency & high cost; comprehensive Type of service provider: Public, NGO and/or private-for-profit (accreditation and contracting issues) Route for accessing services: referral routes, PHC gatekeepers (rather than co- payments) Affordability and sustainability

Reimbursement mechanisms Payment mechanismAdvantagesDisadvantagesWays of minimizing disadvantages SalaryPredictable expenditure Low administrative costs Possible under-provision and/or poor quality of care Little incentive for efficient behaviour and productivity unless linked to performance Peer-review of provider practices Link part of payment to performance CapitationIncentive for technical efficiency and preventive care Administration costs reasonably low Incentive to under-service Possible cream-skimming (attracting low risk patients) Possible cost shifting (referral to another provider) Adjust payments to risk Monitoring and peer-review of provider practices (including referral patterns) Patient choice of provider Fee for serviceIncentive for technical efficiency (where fee schedules are fixed) Incentive for over-provision and cost escalation High administrative costs Global caps and/or adjusting fee to keep within resource limits Budget allocationPredictable expenditure and tight control Low administrative costs Limited direct incentives for efficiency unless linked to performance Can lead to under-servicing and cost shifting Link part of payment to performance Monitoring and peer-review Per diemSome incentive for technical efficiency Incentive to extend length of stay and/or increase number of admissions Global caps/budget limits Lower fees for longer stays Case-based (includes diagnosis related group* payments) Strong incentive for efficient operation Unpredictable expenditure Relatively high administrative costs Incentive for cream-skimming* Adjust for case mix, i.e. by grouping people according to their use of resources

Context and process No single ‘right’ way of funding health care – depends on what exists in the country and what is feasible Process of developing and implementing health care financing policies are critical – need to be aware of key stakeholders’ views and to reduce opposition & engender support