Financing of Health Systems: restrictions and opportunities International Conference on Innovations...

Financing of Health Systems:

restrictions and opportunities

International Conference on Innovations

in Health Financing

Mexico City, April 2004

Carlos Noriega

Financing of Health Systems: restrictions and opportunities

1. Introduction

2. Objectives

3. Health expenditures: need and demand

4. Health financing:

a. Collection

b. Risk - Pooling

c. Contracting

5. Policy Options and Opportunities

Mexico faces critical public health challenges in the near term:

Improving health status

Reducing health inequalities

Demographic transition

• Some of the challenges emerged as a consequence of deficiencies in the national health system.

• Despite recent reforms, some issues remain to be defined.

• How should the national health system be financed?

• Conceptual analysis and international experience should bear on the policy response.

In designing a national health system the following issues need to be addressed:

• How much financing is required?

• From what sources?

• What is the role of government?

• Which services are to be included?

In strengthening an existing national health system the questions are inverted:

• What can be done with available financing?

• Is the structure of financing adequate?

• Can the government do any better?

• Should the basket of services be modified?


1. Introduction

2. Objectives



a. Collection

b. Risk - Pooling

c. Contracting


Set guiding principles for financing a national health system

Hypothesis

It is as important the amount of financing as the structure of

collection and the mechanism for allocating the resources

Two major premises

1. The financing scheme is, simultaneously, a major instrument of economic and social policies.

2. Principles cannot ignore the current economic, social and

political environment


1. Introduction

2. Objectives



a. Collection

b. Risk - Pooling

c. Contracting


How much to spend?

The gap between need and demand for health services may be explained by:

• Legal and regulatory framework

• Budget restrictions

• Market failure

• Information costs and asymmetries

• Financial market costs

• Externalities

Health expenditures

•Form of investment in human capital

•Impact welfare and economic growth

Health expenditures should respond to health considerations as well as to overall economic growth and development goals

EVISA VS. HEALTH EXPENDITURE AS % OF GDP

Health expenditure as % of GDP

EV

ISA

0 3 6 9 12 15

28

38

48

58

68

78

México

EVISA VS. HEALTH EXPENDITURE PER CAPITA (US$)

Health expenditure per capita (US$)

EV

ISA

0 1 2 3 4 5(X 1000)

28

38

48

58

68

78

México

DALY´s

LIFE EXPECTANCY VS. HEALTH EXPENDITURE AS % OF GDP

Health expenditure as % of GDP

Lif

e ex

pect

ancy

0 3 6 9 12 15

34

44

54

64

74

84

México

LIFE EXPECTANCY VS. HEALTH EXPENDITURE PER CAPITA (US$)

Health expenditure per capita (US$)

Lif

e ex

pect

ancy

0 1 2 3 4 5(X 1000)

34

44

54

64

74

84

México

Life Expectancy

• México spends relatively little in health as compared to other countries with similar income per capita in the

region

• Daly´s in Mexico are relatively higher as compared to other countries with similar levels of health expenditures

(% of GDP and $/pc)

• At low levels of expenditure more spending contributes to a higher health level

• At higher levels of expenditure more spending contributes marginally or even negatively to the health level

• México still can improve health levels by spending more

Developing countries need to confer a higher priority to health expenditures to promote welfare and growth.


1. Introduction

2. Objectives



a. Collection

b. Risk - Pooling

c. Contracting


From the point of view of efficiency

Moral Hazard

Once insured, there are incentives to engage in a more risky behaviour and to use in excess health services

Adverse Selection

Asymmetric information may lead riskier households/persons to seek affiliation

Rule of thumb: control population in order to charge according to risk

I. Sources of financing

From the point of view of equity

Individual Society-Pooling

Financing Out of pocket General Revenue

Risk burden Pay per event Social Insurance

Inequitable Equitable

Rule of thumb: favor pooling of risks and of financing

Dilemma: is there a conflict between efficiency and equity?

EVISA VS. OUT OF POCKET HEALTH EXPENDITURE AS % OF TOTAL HEALTH EXPENDITURE

Out of pocket health expenditure as % of total health expenditure

EV

ISA

0 20 40 60 80 100

28

38

48

58

68

78

México

DALY´s vs Out-of-pocket expenditures as % of total health expenditures

GDP per capita

com

pone

nt e

ffec

t

0 1 2 3 4 5(X 10000)

-29

-19

-9

1

11

21

Out of pocket health expenditure as % of total health expenditure

com

pone

nt e

ffec

t

0 20 40 60 80 100

-25

-15

-5

5

15

GDPpc has a positive impact on DALY´s

Out-of-pocket expenditures have a negative impact on DALY´s

Source: WHO, Sample of 191 countries, 2002

International evidence does not support the dilemma

• More equitable financing reinforce efficiency of health systems

• Equity goals may be pursued as part of the financing scheme

• Equity goals should be made transparent to ensure they are effectively achieved

II. Federal-Local

Federal financingEquity: Inter-regional transfersEfficiency: More effective risk-pooling

Local financing

Alignment of incentivesTransparency and accountability

Closer links expenditure / collection

Challenges for local operation

• Increase coverage

• Autonomy for managing programs

• Flexibility to adapt content of basic package of services

• Responsibility in a decentralized financing scheme

0.00 4.00 8.00 12.00

POBLACION ABIERTA

400.00

800.00

1200.00

1600.00

GA

ST

O P

ER

CA

PIT

A E

N S

AL

UD

Ags

BC

BCS

Camp

Coah

Col

Chis

Chih

DF

Dgo

Gto

Gro

Hgo

Jal MexMichMor

Nay

NLOax

Pue

Qro

Q.Roo

SLP

Sin

Son

Tabs

Tamps

Tlax

Ver

Yuc

Zac

Local financing for open population (% of total public spending, 2002)

0

10

20

30

40

50

60

Tabasc

o

Distrit

o Fed

eral

Veracru

z

Chihuah

ua

Sinaloa

Tamau

lipas

Nuevo L

eón

Mor

elos

Nayarit

Chiapas

Tlaxca

la

Mich

oacán

Queré

taro

Colima

Durang

o

Baja C

alifo

rnia

%

Local governments differ greatly in their contribution to health financing of open population

To improve efficiency incentives need to be realigned:

• Increase local financing

• Provide operational autonomy to local governments

Health programs for open population:

• Federal in nature,• Operated by local governments• Financed mostly by federal government


1. Introduction

2. Objectives



a. Collection

b. Risk - pooling

c. Contracting


I. National health system

In terms of risk pooling, health systems may, in principle, be classified as follows:

In most countries legislation ensures universal coverage, yet

in practice health systems fall into one of these categories.

Universal Coverage

Partial Coverage

Single pool United Kingdom Costa Rica

Multiple pools Switzerland Mexico

Advantages of a single pool of risks:

• Better compensation of risks

• More transparency for pooling financial resources

• Reduce administrative costs

• Centralized contracting of inputs and services

Advantages of multiple pools of risk:

• Decentralization stimulates standardization

• Efficiency gains of adecentralized scheme

• Marginal compensation gains for very large populations

Overall Health System Position

WHO

Country System

3 Norway Single

6 France Single

7 Canada Single

8 Netherlands Single

9 United Kingdom Single

15 United States Multiple

19 Spain Multiple

33 Chile Single

41 Colombia Single

45 Costa Rica SIngle

51 Mexico Multiple

65 Venezuela Multiple

International experience seems to indicate that single systems perform better.

Challenges to implement effective risk-pooling in the presence of various national health institutions:

• Portability of rights

• Standardization of public contributions

• Management of financial reserves

• Standardization of services

• Standardization of quality of services

Recommendation:

• Migrate to a single health system with effective financing and risk pooling,

• In the short run implement a gradual process of separation of financing/provision in existing public health institutions

II. Public-Private Two major issues need to be answered: 1. Nature of the service

PUBLIC (?) PRIVATE (?)

Compulsory affiliation Voluntary affiliation

Non-profitable Profitable

Centralized De-centralized

Comprehensive coverage Partial coverage

Regulated Non-regulated

Risk-pooling Health-services provision

The false debate

GOAL INSTRUMENT ACTION

Long term perspective Compulsory affiliation Creation of operative and actuarial reserves

Universal coverage Public contribution (subsidies for the poorest and worst risks)

Regulation for “bad risks” (pre-existencias)

Efficiency and Quality of health services

Competition in the provision of services

Cost containment Competition Hard budget restriction

• International experience shows a variety of solutions

• Services not necessarily have to be provided by the public sector.

Ultimate criterion: allow private participation on efficiency grounds making use of available instruments

2. Co-existence of providers: substitute vs. complement

Role Condition Mechanism

Substitute Large group Capitated reversal of contributions

Complement Nature of risk not prioritary for public health

None

Basic Package Complementary Package

Basic care Public

Secondary care

Tertiary care Private

This outcome enhances efficiency in the system and allows for public resources to be focused where they cannot be

substituted by the private sector.


1. Introduction

2. Objectives



a. Collection

b. Risk - Pooling

c. Contracting


Basic services provided

Classical Universalism: Provide and finance everything for everybody

New Universalism: If services are to be provided for all, then not all services can be provided.

Defined basket of basic services

Gains in efficiency:

• Costs: standardization allows for economies of scale

• Simplification of processes: planning, training, monitoring, supervision

• Certainty on rights of affiliates

• Sharpening the scope of public responsibilities

Gains in equity:

• Affiliates receive similar benefits (avoids undue transfers)

• Increase coverage

Constraints:

• Budget Restriction

• Extend coverage

Recommendations:

• Reach a consensus on public health priorities

• Establish cost-effectiveness criteria to define a basket of basic services

• Coordinate among existing public health institutions to transit to that basket of basic services


1. Introduction

2. Objectives



a. Collection

b. Risk - Pooling

c. Contracting


Policy Options and Opportunities

Funding:

• Increase total funding to health (2-3% of GDP in 5-10 years)

• Increase public financing (budget and tax reform)

• Increase and uniform contributions by local governments

• Channel out-of-pocket resources to pre-paid schemes Pooling:

• Conform a national pool (contract with capitated payments)

• Voluntary affiliation to complementary private services

• Separation of financing/provision of health services

• Allow private participation in complementary services

Contracting:

• Move towards a basket of basic services

Consensus on public health priorities

and health financing

Collection Riks-Pooling Contracting

Efficiency Equity Universal Coverage

Goal Instrument Actions

Funding

Increase total resources by 2-3% of GDP in 5-10 years

Federal Government raises contributions and explicit subsidies

Tax and budget reform

Local governments increase contributions and uniform them across regions

Tax and budget reform

Channel out-of-pocket resources into a pre-paid scheme

Transform current assistance programs into insurance programs

Seguro popular de salud, Seguro de salud de familia, voluntary affiliation (IMSS, ISSSTE)

Pooling

Establishment of a single national pool

Pool contributions and subsidies

Coordinate (merge) existing national and local social security institutions (IMSS, ISSSTE, ISSSTESON, ISSSTELEON, etc.)

Split funding and provisioning Contract through capitated payments

Internal reforms of existing national and local social security institutions

Allow private participation for complementary services

Legal and regulatory reforms

Contracting

Define a basic package of services

Legal and regulatory reforms Define services based on cost-effectiveness criteria

Financing of Health Systems:

restrictions and opportunities

International Conference on Innovations

in Health Financing

Mexico City, April 2004

Carlos Noriega

Financing of Health Systems: restrictions and opportunities International Conference on Innovations...

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