Division of Health Systems & Public Health

Adapting revenue policies to health needs and

expenditure projections

Tamás Evetovits & Sarah Thomson WHO Barcelona Office for Health Systems

Strengthening

OECD meeting of the Joint Network on Fiscal Sustainability of Health Systems, 16-17 February 2015

Stable and predicatble revenues for health – growing or not

Sustainable public financing for health

The dialogue needs to continue

Outline

While health has taken an increasing share of public spending in high income countries (pre-crisis), it is not the case in less developed countries of the WHO European Region

Source: WHO NHA database, 2012

14.4% 13.7%

WHO and European Observatory joint study on the crisis http://www.hfcm.eu

Policy summary

The financial crisis reminded us of the importance of counter-cyclical spending on health

• Health systems always need stable revenues

• In an economic crisis public funding levels should increase as household incomes fall:

– means-tested entitlement to public services

– greater need for health services

– people substitute public services for private

Policy options for health when government revenues fall

Cut spending to match revenue

• Doing nothing as government revenues fall

• Targeting the health budget for cuts to achieve fiscal consolidation objectives

Find additional revenue

• Deficit financing

• Countercyclical mechanisms

• Reallocation across government

• New earmarking

• New taxes

Get more out of available revenue

sources

• Enforce collection

• Lift contribution ceilings

• Abolish pro-rich tax subsidies

• Broaden public revenue base

Public spending on health fell disproportionately in many countries

Source: WHO NHA database, 2013

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Pro-cyclical public spending on health

Change in the health share (%) of total government spending, 2007-2011

Not about tax-financed NHS vs earmarked SHI

Source: WHO NHA database, 2013

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-10

0

10

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enia

Latv

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Pro-cyclical public spending on health

Change in the health share (%) of total government spending, 2007-2011

Level of public spending on health is highly dependent on governments’ priority to health

Pub

lic s

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as

% a

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Source: WHO 2014

Lessons from the Baltics: counter-cyclical mechanisms are critical

Latvia

• Tax funded health system was cut more than other sectors under fiscal pressure of similar mag-nitude to LTU and EST

Estonia

• HIF reserves could have covered decline in payroll tax revenue: use of reserves was modest as fiscal balance got priority

Lithuania

• Highly effective formula-based budget transfers to compensate for lower payroll tax revenue secured stable revenue for health

Unmet need due to cost among the poorest quintile: countries with > 1 percentage point increase, 2008-2013 (and LTU)

Source: EU-SILC

The “successful” fiscal adjustment program in Latvia: how much inequity is “sustainable”?

%

02468

10121416182022242628

2008 2009 2010 2011 2012 2013

LatviaGreeceItalyCyprusPolandIcelandFranceBelgiumPortugalLuxembourgIrelandLithuaniaSpain

Estonia was well prepared but prudence in the health sector was used to balance the government budget

Source: T. Habicht, EHIF, www.haigekassa.ee

Lithuania’s formula for budget transfers ensured public funding levels were stable

Source: Jowett et al in Thomson et al 2014

Beveridge vs Bismarck? Lithuania is setting a new standard in the Baltics and beyond

Tax-financed (Latvia): unpredictable annual allocation decisions make stakeholders argue for earmarking

SHI: exclusive reliance on earmarked payroll tax is unsustainable in the long run (message for Estonia)

Lithuania: balanced revenue mix of payroll tax and budget transfers with counter-cyclical mechanisms

Counter-cyclical revenue for health is good for sustainability

It helps maintain spending levels when it is most needed i.e. during a

downturn

It helps contain growth in health spending during

economic prosperity

Sustainable public financing for health

Broadening the revenue base

Reducing reliance on social insurance

contribution by using general tax

Sin taxes may have an increasing but

modest role

Increasing efficiency of spending and

improving targeting for equity

Income tax is usually more progressive than social contributions

Source: Verbist and Figari 2014

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Payroll tax

Income tax

VAT Tobacco tax

Alcohol tax

OOPs

Distributional effect of different revenue collection mechanisms

Progressive

Regressive

Indirect taxes Direct taxes

Is more private financing the answer to fiscal sustainability concerns?

Is it feasible?

Will VHI markets develop to address gaps in coverage and minimise OOPs?

Is it desirable?

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PHI Other private

PHI generally accounts for a small share of private spending on health

Source: WHO GHO 2015

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OOPs <15% TEH 15-24% 25-34% 35%+

More PHI does not mean less OOP

Source: WHO GHO 2015

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But less public spending does mean more OOPs

Source: WHO GHO 2015

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Public spending on health as % GDP

Lowering public spending on health is a poor solution to fiscal

sustainability

When OOPs are more than 15% of TEH, we begin to see catastrophic spending by

poorer households

„Improving efficiency is a far better option than cutting back on services or imposing fees that punish the poor” (Margaret Chan, WHO DG)

Efficiency gains are part of the solution…

…but efficiency gains alone are NOT the solution

The dialogue needs to continue

Health: Give us more money, we know how

to spend it well.

Finance: Improve efficiency first and

then we may give you more

Focus on spending more efficiently

Acknowledge fiscal constraints

Growth in health spending is to stay and

it is not a bad thing Acknowledge equity implications of OOPs

Fiscal sustainability is meaningless if not linked to public policy objectives

WHO Barcelona Office for Health

Systems Strengthening

Established in 1999 Supported by the Government of the

Autonomous Community of Catalonia, Spain Focuses on health systems financing:

analytical work and capacity building Staff work directly with Member States across

the European Region Part of the Division of Health Systems &

Public Health of the WHO Regional Office for Europe www.euro.who.int

Contact us: Sant Pau Art Nouveau Site

Nostra Senyora de La Mercè pavilion Sant Antoni Maria Claret 167

08025 Barcelona, Spain Email: whobar@euro.who.int