Funding health care: current options and future direction Anna Dixon Research Officer

Funding health care: themes Public sources of revenue – taxation and social health insurance Private sources of revenue – user charges and private health insurance Health and social care – complementary?

Proportion of tax and SHI as % THE in western Europe Percentage of total health expenditure from taxation Percentage of total health expenditure from social health insurance UK FIN D F S NL GRE IRL DK CH I B L NOR E P

Contribution of taxation to social health insurance fund income Austria: – farmers fund - 23% – overall 0.5% Belgium: 35-40% France: about 60% Germany: – farmers fund - 52% – overall <1% Luxembourg: up to 40% Netherlands: 25%

How fair is social health insurance? Upper income ceiling Lower income threshold Earnings % contribution

Top income tax rate Lower income tax rate How fair is tax? Middle income tax rate Income % contribution

Changes to social health insurance Universal coverage Wider revenue base Greater government control Choice and competition

Extension of coverage, Germany 1883 – 10% pop covered 1901 – white collar from transport and commercial 1914 – domestic servants, agricultural and forestry 1972 – farmers

Insurance Competition Netherlands (1987) Germany (1996) Switzerland (1911) Belgium (1945)

Population Patients Providers Risk Structure Compensation Scheme Co-payments/ Direct payments Negotiated contracts Income-related contribution (varies by fund) Germany Competing sickness funds Provider Associations

Flat-rate (varies by insurer) Income-related contribution (8.1%) Population Patients Providers Central Fund Co-payments/ Direct payments Selective contracting Risk- adjusted capitation Competing insurers Netherlands

Out-of-pocket payments as % of total health expenditure OECD Health Data 2000

Arguments for user charges they can increase efficiency and contain costs by reducing demand they can mobilise resources and raise revenue in the health sector

Arguments against user charges Increasing efficiency and containing costs by reducing demand? Welfare loss or gain? Information asymmetry Supplier-induced demand Provider payment methods Increased administrative costs

Differing impacts of user charges The availability of supplementary insurance Reducing ‘necessary’ and ‘unnecessary’ utilisation Impact on prevention Concerns for health - Impact on health status Health as a public good and caring externalities

Voluntary health insurance is… “health insurance that is taken up and paid for at the discretion of individuals or employers on behalf of individuals. VHI can be offered by public or quasi public bodies and by for profit and not for profit private organisations” –Mossialos and Thomson 2001

Key features Performance –Profit ratios –Coverage –Costs –Impact on SHI –Equity Public policy –Structure and scope of SHI –Tax incentives –Regulation (EU or national) Market structure –Product –Number and type of insurers –Buyer characteristics Conduct –Pricing (premium setting) –Product (scope of benefits, etc.)

European experience Substitutive –Alternative to public insurance; main form of insurance cover for individual Supplementary –may increase subscriber choice of provider and improve (speed of) access Complementary –full or partial coverage for services that are excluded or not fully covered by the statutory health system

Expenditure projections for England, 1996 to 2031 Wittenberg et al, Health Statistics Quarterly, winter % of GDP

‘Those in employment have a duty to ensure, through contributions or taxes, that older people have a decent standard of living’

Where next? Sustainability of public finance Culture of solidarity –Interpersonal –Intergenerational Rationing EU regulation

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