Key issues in health care financing

Di McIntyre

Objectives

Introduce some key concepts

Introduce a useful analytic framework

Illustrate the analytic framework with some LMIC experience

Financial protection

Ensuring that no household is

impoverished because of a

need to use health services

Universal coverage

A health system that

provides all citizens

with adequate health care

at an affordable cost

Equitable financing

Contribute according to ability-to-pay and benefit according to need (capacity to benefit)

Cross-subsidies: Income cross-subsidies (rich to the

poor) [proportional or progressive?] Risk cross-subsidies (healthy to the ill)

Cross-subsidies in overall health system

Other key considerations

Efficiency: Level of revenue generation Costs of revenue collection &

administration Promotes technical & allocative efficiency

Sustainability: Stability Ability to expand over time

Feasibility

Framework (Kutzin)

Revenue collection

Pooling of funds

Purchasing

Revenue collection

Sources of funds: Balance between external & domestic

sources Balance between companies &

individuals Contribution mechanisms:

Structure of contributions Type of collecting organisation

Contribution mechanisms

General taxes: Direct taxes usually progressive,

particularly in LMICs Indirect taxes usually regressive, but

slightly progressive in some LMICs Share of these taxes determines

overall progressivity of tax revenue Key issue: Fiscal space to increase

spending on health care (debt burden)

Contribution mechanisms

Private voluntary health insurance: If major component of funding, tends to

be regressive If ‘top-up’ and in many LMICs,

‘progressive’ (only the rich contribute, but also benefit)

Mandatory health insurance: Depends on structure of contributions

(flat amount or flat % contribution, maximum cap tends to be regressive

Pooling of funds

Objective: Difficult to predict risk of an individual falling ill, but easier for a large group (pooling or spreading risk)

Key issues: Coverage and composition of risk pool:

Size of the population and the socio-economic status of groups covered

Mechanisms to allocate resources from pooling to purchasing organisations

Risk pool

Out-of-pocket payments and medical savings accounts allow no pooling (outside household)

Single, universal pre-payment funding mechanism maximises risk pool

Fragmented pools: Sustainability and equity problems

(reinsurance) People ‘fall through the cracks’

Expanding risk pools

Voluntary or social health insurance national health insurance: Level of income & economic growth rate Size of formal sector and urban

population Level of social solidarity Resistance by those currently covered

(changes in benefit package, contribution rates, etc.)

Opting out

Allocation mechanisms

Risk-equalisation between different insurance schemes: Risk profile of each scheme (age,

gender, chronic illness, etc.) Risk-adjusted capitation to cover

costs for standard benefit package Needs- based allocation of tax (and

donor) funds

Tax & SWAP

OOP user fee revenue

CBHI contributions

Matching govt. grant

SHI reimbursements

Global Fund ARV

Rural district Urban district

Systemic view

Purchasing

Choice of benefit package: Which services: low-frequency & high-

cost; high-frequency & high cost; comprehensive

Type of service provider: Public, NGO and/or private-for-profit (accreditation and contracting issues)

Route for accessing services: referral routes, PHC gatekeepers (rather than co-payments)

Affordability and sustainability

Reimbursement mechanisms

Payment mechanism Advantages Disadvantages Ways of minimizing disadvantages

Salary Predictable expenditureLow administrative costs

Possible under-provision and/or poor quality of care

Little incentive for efficient behaviour and productivity unless linked to performance

Peer-review of provider practicesLink part of payment to performance

Capitation Incentive for technical efficiency and preventive care

Administration costs reasonably low

Incentive to under-servicePossible cream-skimming (attracting low risk

patients)Possible cost shifting (referral to another

provider)

Adjust payments to riskMonitoring and peer-review of

provider practices (including referral patterns)

Patient choice of provider

Fee for service Incentive for technical efficiency (where fee schedules are fixed)

Incentive for over-provision and cost escalationHigh administrative costs

Global caps and/or adjusting fee to keep within resource limits

Budget allocation Predictable expenditure and tight control

Low administrative costs

Limited direct incentives for efficiency unless linked to performance

Can lead to under-servicing and cost shifting

Link part of payment to performance Monitoring and peer-review

Per diem Some incentive for technical efficiency

Incentive to extend length of stay and/or increase number of admissions

Global caps/budget limitsLower fees for longer stays

Case-based(includes diagnosis related

group* payments)

Strong incentive for efficient operation

Unpredictable expenditureRelatively high administrative costsIncentive for cream-skimming*

Adjust for case mix, i.e. by grouping people according to their use of resources

Context and process

No single ‘right’ way of funding health care – depends on what exists in the country and what is feasible

Process of developing and implementing health care financing policies are critical – need to be aware of key stakeholders’ views and to reduce opposition & engender support