Health Finance Reforms in Southern Health Finance Reforms in Southern Europe: Lessons from CroatiaEurope: Lessons from Croatia

European Health ForumSeptember 27, 2002

Akiko Maeda, Lead Health SpecialistThe World Bank

amaeda@worldbank.org

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 PerformanceMeasuring Health System Performance

Revenues Revenues /Inputs/Inputs

• Redistributive Redistributive (prog./reg.)(prog./reg.)

• Administrative Administrative EfficiencyEfficiency

• Risk-pooling/ Risk-pooling/ management management

Health Services Health Services ThroughputsThroughputs

• Allocative Allocative EfficiencyEfficiency

• Microecon. Microecon. efficiencyefficiency

• Efficacy/ Efficacy/ EffectivenessEffectiveness

Health Health OutcomesOutcomes

• Aggregate Aggregate

• Disease Disease specific specific

• Socio-Socio-economic economic factorsfactors

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

Total Health Expenditure, 1998

GDP Per Capita (US$, Official Exchange Rate), log scale

Hea

lth

Exp

end

itu

re P

er C

apit

a (U

S$)

lo

g sc

ale

CEE

NIS

Linear (NIS)

Linear (CEE)

10

100

1000

100 1000 10,000

Croatia

Global Health Expenditure as % GDP, ca. 1998

0

2

4

6

8

10

12

14

GDP Per Capita (US$, Official Exchange Rate), log scale

To

tal H

ealth

Exp

end

iture

(% o

f G

DP

)

100 1,000 10,000 100,000

Croatia

Croatia Social Health Insurance Beneficiaries

0%

20%

40%

60%

80%

100%

1994 1995 1996 1997 1998 1999 2000 2001

Year

% T

otal

Ben

efic

iari

es

Others including dependents

Unemployed

Pensioners

Actively Employed and ActiveFarmers

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 Insurance Expenditures (constant 1997 price), 1994-2001

0

2000

4000

6000

8000

10000

1994 1995 1996 1997 1998 1999 2000 2001

Year

HR

K,

in m

illi

ons,

con

stan

t 19

97 p

rice

Other health service-related expendituresHospitalizationPrescription drugsPolyclinics, specialist consultationsPrimary care

Croatia Health Finance Reform Croatia Health Finance Reform Initiatives 2002Initiatives 2002

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