1 Overview of Health Financing EAP Regional Seminar on Health Financing Bangkok, Thailand, February 2008 Fadia Saadah, World Bank

2 Outline of Presentation Demographic and epidemiological trends Health spending patterns Health financing functions Challenges/lessons

3 Demographic and Epidemiological Trends

Demographic Transition Underway: Working Age and Elderly Populations Will Grow Rapidly 2000 FEMALESMALES Ages Source: World Bank FEMALESMALES Ages

5 Future GDP Growth in EAP Looks Robust Source: World Bank 2007.

6 NCDs and Injuries Represent a Major Share of BOD (Disease Burden Distributionby Select World Bank Region, 2001) Percent Note: Numbers are rounded. Source: Disease Control Priorities in Developing Countries, second edition, 2006, Table 4.1

7 Most EAP Countries Do Well on Child Mortality Given Their Income and Health Spending Levels

8 But Maternal Mortality Results are More Mixed

9 Health Spending Patterns

10 Health Expenditures Across Regions, by Source of Financing, 2005

11 Public Health Expenditures by Source of Financing

12 Source: Database of the Asia-Pacific National Health Accounts Network; data for recent years Total Health Expenditures by Source of Financing

13 Public Share of Total Health Spending is Generally Low

14 Out of Pocket Spending as a Share of Total Health Spending is High Relative to Other Comparable Income Countries

15 Catastrophic impact of health spending Source: EQUITAP study

16 Large OOP Share is Related to High Incidence of Catastrophic Health Spending Source: Equitap study

17 Health Financing Functions

18 Health Financing Functions and Objectives FunctionsObjectives Revenue collection Pooling Purchasing raise sufficient and sustainable revenues in an efficient and equitable manner to provide individuals with a basic package of essential services which improves health outcomes and provides financial protection and consumer satisfaction manage these revenues to equitably and efficiently create insurance pools assure the purchase of health services in an allocatively and technically efficient manner Source: Gottret and Schieber, Health Financing Revisited, World Bank 2006

19 Equity – Remains an Challenge in EAP (1) Source: Equitap study

20 Equity – Remains an Challenge in EAP

21 Indonesia - Wide Variation in Per Capita Health Spending Across Provinces Source: World Bank 2006

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23 What do We Mean by Risk Pooling? Age Resource endowment Health risk Resource endowment Cross-subsidy from low-risk to high-risk (risk subsidy) Low risk High risk $ $ Income Resource endowment Cross-subsidy from rich to poor (equity subsidy) Poor Rich $ $ Cross subsidy from productive to non-productive part of the life cycle Produ ctive Non- produc tive $ $

24 Fragmentation in Health Financing In many countries in the region, health financing is fragmented Different financing mechanisms for different groups or sectors of the economy –Thailand: Civil Service Medical Scheme and Social Security Scheme for formal sector; UC scheme for informal sector –China: Basic Medical Insurance (BMI) for urban formal sector; New Cooperative Medical Scheme (NCMS) for rural sector –Laos: Civil Service and Social Security Schemes for formal sector; CBHI and other schemes for informal sector Fragmentation can also be geographic –China: Both BMI and NCMS are based on city- or county-wide risk pools Several countries considering health financing reforms introducing new sources of financing and management mechanisms –fragmentation issue needs to be considered early in design phase

25 Universal HI : Thailand UCCSMBSSSS Contribution 2001 NHSO MOF ComptrollerSSO Capitation DRG FFS Capitation DRG Public Private Providers 48 mil.7 mil. Insurees, Right holders TAX 1990 Services >50 yrs.

26 Why is Fragmentation a Problem? Administrative inefficiency –Duplication of tasks and dispersion of scarce capacity Lack of portability  reduced labor market mobility Difficult to implement cross-subsidization and achieve equity goals Reduced ‘purchasing power’ and difficult to create coherent incentives for providers –E.g. different payment systems / rates for different schemes

27 What can be done about fragmentation Joint / coordinated management systems and provider payment arrangements –On the agenda in many countries, but institutional and political barriers Unification of schemes –E.g. integration of health insurance funds in South Korea in 2000 –Politically challenging Risk-pooling at higher geographic level –Trend towards risk pooling at provincial level for pensions in China; not yet for health

28 Efficient Purchasing is Essential Will payments be based on ‘results’? What care will be produced? How will care be produced? What about quality? To whom will care be offered? What kinds of care and how much will consumers ‘demand’/access? How will will providers be paid and/or consumers reimbursed? Source: Modified from Rena Eichler, WB, 2003

29 Higher Public Spending on Health Does Not Necessarily Mean Better Health Outcomes * Public spending and child mortality rate are shown as the percent deviation from rate predicted by GDP per capita Source: Spending and GDP from World Development Indicators database. Under-5 mortality from Unicef 2002`, WDR 2004

30 Financing Challenges/Lessons There is no one ‘right’ financing model. System financing must be sustainable LICs face difficult tradeoffs between financing essential services and providing financial risk protection -- prioritization is critical. Important to address absorptive capacity and ability to finance from domestic resources future recurrent and capital costs.

31 Financing Challenges/Lessons Many countries trying to achieve universal coverage, reduce fragmentation, and improve efficiency. However, key is the impact; specific model is of secondary importance. Health Financing models need to take into account the level of income, rate of growth and institutional and administrative capacity. Health Financing reforms need to pay great attention to political economy dimension also key. Again, models need to be tailored to individual countries

32 Source: World Bank, PREM:, Estimates of revenue effort may suggest that an additional several percent of GDP could be raised through domestic revenue measures. Additional grants from donors are unlikely. Spending efficiency can be improved. Macroeconomic and debt management may suggest that new borrowing over the period should be limited. Seignorage (govt prints money which it loans to itself) is yet another, but generally limited, mechanism for creating fiscal space. Fiscal Space* is Needed *Budgetary room that allows a government to provide resources for a desired purpose without any prejudice to the sustainability of its financial position

33 Financing Decisions Involve Difficult Trade- offs Efficiency Equity Sustainability Affordability Political Criteria Health Outcomes Financial Protection Consumer Satisfaction

34 Key Messages Macroeconomic situation provides good opportunity to increase financial protection and think about health financing reforms Increasing role of private sector; models need to take that into account; ensure coordination and governance Need to increase efficiency in spending in the region/Address fragmentation