Universal Health Insurance. Background Policy Paper on Raising Resources for Universal Health Insurance

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1 Universal Health Insurance Background Policy Paper on Raising Resources for Universal Health Insurance March 2014

2 Table of Contents Chapter 1: Introduction & Context..2 Chapter 2: Health Sector Funding Flows in Ireland...5 Chapter 3: Options Appraisal...31 Chapter 4: Conclusions & Recommendation...49 Appendix A: International Evidence Review 51 Appendix B: Medical Expenses Tax Relief.72 Appendix C: Income from Statutory Charges.73 Appendix D: Expenditure of Health Group of Votes..74 Bibliography 75 1

3 1. Introduction and Context 1.1 Universal Health Insurance The Government is committed to the delivery of a single-tier health system, supported by universal health insurance, which guarantees everyone equal access to healthcare based on need and not ability to pay. Under universal health insurance (UHI), every member of the population will be insured with an insurer of their choice for a standard package of health services. The introduction of UHI represents the most fundamental reform of the health service in the history of the State. As a starting point in this transformation process, a major programme of system design work is underway. The aim of this programme is to assist Government in developing policy on the key elements of the future UHI system, i.e. the elements which will combine to form the overall shape and structure of the future insurance-based health system, and which will be published in a Government White Paper as a basis for comprehensive public consultation. This paper focuses on one aspect of the future UHI system, namely, how we will fund the future UHI system. In other words, how do we raise the resources required to pay for our health system, especially given that the methods used can have wider efficiency, equity and economic impacts? This is only one aspect of UHI design and the present paper is only one of a suite of interrelated papers being prepared as part of the UHI design work programme (see below). Figure 1.1: Overview of UHI Design Work Programme Basket of Services Model of UHI Funding Mechanisms for UHI White Paper on UHI The paper must, therefore, be understood in the context of these other UHI design papers as well as the wider strategic context of the health reform programme. 2

4 1.2 Policy Context for Paper on Raising Resources The Government s preferred model of UHI for Ireland provides the overarching template in terms of prescribing how new financing arrangements for the health system will work. As such, it sets the parameters for the current paper. Under the model of UHI, health insurers will individually set the levels of the health insurance premiums which each will charge for the standard package of services provided under UHI. As with the current private health insurance market, people will pay their health insurance premium directly to their chosen insurer (1). The State will subsidise these private payments in two ways: by providing financial support towards the cost of UHI premiums (2) and by directly funding certain UHI services or costs (3) 1. Where services form part of the national health basket but are not part of the standard UHI package, the State will also continue to directly fund these services (4). The question of determining which services should form part of the national health basket and, within this, which should form part of the standard package of care under UHI, is explored further in the Policy Paper on Designing the Future Health Basket. Finally, under the preferred model of UHI, individuals can still purchase voluntary supplementary private health insurance or can pay privately for items outside the standard UHI package (5). As such, this will represent a fifth funding source within the future health system. These overarching funding arrangements are illustrated in figure 1.2 below. Figure 1.2: Overall Template for Future Financing Arrangements Resources for Future Health Basket (1) (2) (3) (4) (5) Individual UHI Premiums Financial Support Payments UHI Elements Direct Funds for UHI services (e.g. ED) Direct Funds for other services (e.g. home Other help) Private payments for supplemental items 1 This is also consistent with original commitments set out in the Programme for Government which stipulate that the State will subsidise or pay insurance premia for those who qualify for subsidy and will make direct payments to hospitals for services that are not covered by insurance such as Emergency Departments and ambulances. 3

5 1.3 Layout of Remainder of Paper Given the above parameters as set out by the preferred UHI model, the major policy question to be answered in the present paper is: What is the optimal way to raise resources to fund State subsidies under UHI (i.e. to fund the financial support payments and the direct service costs met by the State)? In order to answer this question, chapter 2 firstly considers the current blend of financing arrangements within the Irish health system, while chapter 3 then presents an options appraisal of various different revenue raising approaches. Chapter 4 concludes. 4

6 2. Health Sector Funding Flows in Ireland 2.1 Introduction This chapter considers macro-level funding flows across our public and private healthcare systems in Ireland. As such, it looks at how resources are raised (section 2.2), how they are managed at a national level (section 2.3) and how they are allocated to fund health services (section 2.4). The chapter concludes by summarising overall funding flows across the public and private systems. 2.2 How Resources are Raised Overview Ireland has a national public health system and a voluntary private health insurance system. This two-tier system is funded from a complex mix of public and private sources which can be broadly summarised as follows. Within the public health system, the predominant source of funding is general taxation with private financing playing a secondary role in the guise of statutory co-payments and payments for private treatment in public facilities. Private healthcare, provided in both public and private facilities, is funded by private health insurance premiums and direct out of pocket payments by individuals which, in turn, are supported by direct tax relief for private health insurance premia and indirect tax relief for medical expenses. An indirect subsidy to the private sector is also provided via the non-charging of some private treatment delivered in public hospitals, although the Government is beginning to remove this subsidy with the introduction of a new charging regime for inpatient private services from 1 st January 2014 in public hospitals. In addition to the intricate interplay of public and private sources outlined above, the State, via several different schemes, directly reimburses private providers for specified services provided to qualifying individuals. While the majority of these schemes are managed by the HSE and funded from general taxation, one of them, the Treatment Benefit Scheme, which covers the cost of certain dental, optical and aural services, is operated by the Department of Social Protection and funded via Pay Related Social Insurance (PRSI). This complex array of financing arrangements is summarised diagrammatically in figure 2.1 below: Figure 2.1: Matrix of Funding Sources Prepaid Sources Public Funding Sources General Taxation PRSI Point of Use Sources Medical expenses tax relief (technically paid retrospectively) PHI tax relief Private Funding Sources PHI premia Statutory charges Other private out of pocket payments, incl. Deductibles 5

7 Level of Funding for Healthcare Based on the latest internationally comparable figures available (2011), overall health expenditure in Ireland stands at 14.15bn or 8.9% of GDP 2. This places Ireland 14 th highest out of 34 OECD countries in terms of total public and private health expenditure. Within this overall expenditure envelope, the predominant source of funding for the Irish health sector is general taxation. The OECD reports that, in 2011, 67% of health expenditure in Ireland was financed through general taxation, with out-of-pocket expenses accounting for 18%, 12% generated through private health insurance and the remaining 3% from other sources. Figure 2.2 below illustrates how this compares with other OECD nations. Figure 2.2: Health Expenditure by Type, 2011 Source: OECD Health Data 2013; WHO Global Health Expenditure Database (cited in Health At A Glance: Europe 2013) However, while public expenditure is the predominant source of funding for the health sector, it has decreased both in real terms and as a proportion of health spending in recent years 3. As table 2.1 demonstrates, per capita public expenditure on health has decreased year on year between 2008 and 2011, while per capita private spend has increased over a similar period. The OECD reports that recent reductions in public health expenditure per capita in Ireland are the highest experienced in any OECD country with the exception of Greece. 4 This was predominately achieved through cuts in public sector wages and staffing levels, as well as reductions in fees paid to professionals and pharmaceutical companies. 2 Source: Data extracted from OECD Stat Extract on 23 Jan Figure refers to public and private expenditure. 3 In 2004, public expenditure as a proportion of overall health expenditure peaked at 77%. 4 OECD Health At A Glance: Europe 2013 as cited in Health in Ireland, Key Trends, 2013, DoH,

8 Table 2.1: Irish Health Spend Per Capita & as % of GDP Per capita ( ) % GDP Public Private Total Public Private Total ,477 1,222 3, ,585 1,133 3, , , , , , , Source: Health In Ireland, Key Trends , Department of Health This increase private per capita spending reflects steep year on year inflation in both private insurance premia and private out of pocket expenditure 5. Furthermore, it is notable that the rise in private expenditure has occurred against a backdrop of significant additional numbers qualifying for medical cards (and thus qualifying for an exemption from certain statutory charges and out of pocket payments), as well as a reduction in the numbers covered by private health insurance. As such, it would appear that the sharp increase in private expenditure has been borne by an ever decreasing share of the population and within an economic environment of declining household incomes. Sections and look in more detail at how public and private funds are raised, including the level of resources raised from each source Raising Revenue from General Taxation As noted above, a significant proportion of Irish health expenditure is directly financed by the Exchequer via general taxation. The Office of the Revenue Commissioners is responsible for the assessment, collection and management of taxes and duties that account for over 93% of all Exchequer revenue in Ireland 6. Taxation consists of income tax, value added tax levied on goods and services, and various other taxes (including stamp duty, capital acquisitions tax, corporation tax, excise duties etc). The revenue raised through general taxation primarily pays for current and capital expenditure on public services including healthcare. The tax system in Ireland can be broadly described as progressive, particularly as it relates to income tax. Income tax is levied at a standard rate of 20% up to the threshold of 32,800 for a single person or 41,800 for married/civil partnership, and at a marginal rate of 41% on incomes above this. 7 A range of tax credits, tax reliefs and exemptions are available, including for medical expenses (the latter are explained in more detail in section below). Level of Resources Raised through General Taxation Total voted Government current expenditure for 2014 stands at 49.6bn of which current health expenditure is 26% or 12.77bn. 8 5 OECD data suggests an increase of 62% in private health insurance expenditure over the period and an increase of 20% in out of pocket expenditure over the same period. Source: OECD data obtained by Health Information Unit and provided to Universal Health Insurance Unit on the 25 th March, Revenue.ie, accessed on 23 rd April, Revenue.ie, accessed on 23 rd April, Revised Estimates 2014, Department of Public Expenditure and Reform. 7

9 Government expenditure on public services is couched within the need for fiscal retrenchment related to the current economic crisis. The Expenditure Report 2013 by the Department of Public Expenditure and Reform notes that, since peak spending in 2009, overall expenditure across Government Departments has decreased by 10% 9. This includes a reduction in the area of health from 15.5bn in 2009 to 13.6bn in 2013 (see table 2.2 below). Table 2.2: Trend in Government Expenditure Source: Expenditure Report 2013, Department of Public Expenditure and Reform A more comprehensive trend analysis of public expenditure on health 10 reveals that between 2003 and 2009 (when public health spending peaked), expenditure increased by 65% from 9.3bn to 15.52bn but this was followed by a marked decrease of 10.5% between as illustrated in the graph below: Figure 2.3: Trend Analysis of Public Expenditure on Health Total Public Expenditure Non-Capital Expenditure Capital Expenditure Expenditure Report 2013, Department of Public Expenditure and Reform 10 Total expenditure comprises capital and current expenditure, including Treatment Benefit Scheme payments. 8

10 Source: Health in Ireland: Key Trends in 2013; Department of Health 2013 This spending reduction has occurred in the context of strong and sustained population growth and a marked increase in the older population. Between 2005 and 2012, the population of Ireland increased by around 11 per cent, while the population over 65 rose by nearly 20 per cent 11. Table 2.3 below demonstrates the combined impact of public expenditure reductions and demographic change over the period Table 2.3: Impact of Demographic Trends and Public Expenditure Reductions % Change Total 4,533.4m 4,554.8m 4,574.9m 4,585.4m 4, % Population Population 498, , , , , % over 65 years O/65 Per 30,451 28,365 26,140 25,272 24, % Capita Spend Source: Table derived from Health system responses to financial pressures in Ireland: policy options in an international context, WHO 2012 and updated using 2012 outturn figures as published in the Revised Estimates of Expenditure 2013 and 2013 outturn figures as published in the Revised Estimates of Expenditure Public expenditure refers to gross current expenditure for the Health Group of Votes. Please note that per capita spend calculations are author s own Raising Revenue from Private Sources Private health expenditure broadly consists of out-of-pocket payments and expenditure on private health insurance. As noted above, private expenditure accounted for 30% of overall health expenditure in 2011, which can be disaggregated into 18% for out-of-pocket payments and 12% for private health insurance expenditure. Statutory charges amounting to 655.6m were raised in 2011 and were met from either out of pocket payments or private health insurance payments. Out-of-Pocket Payments Out of pocket payments on health include spending on GP and other professionals' fees (e.g. consultant specialists, dentists, opticians etc.), net outlays on prescription medicines, and spending on other medical equipment and services. The proportion of out of pocket payments in total healthcare financing remained relatively stable year-on-year 14 until 2007 at approximately 15%. However, subsequent OECD figures show that this figure has been rising (15.7% in 2008, 15.6% in 2009, 17.4% in 2010 and 18.1% in 2011) 15 and amounted to almost 2.6bn 16 in An examination of the Consumer Price Index for health suggests that this rise is linked to corresponding increases in the underlying price of hospital and outpatient services and the professional fees of doctors, dentists etc. By contrast, 11 Health system responses to financial pressures in Ireland: policy options in an international context, WHO CSO Population and Migration Estimates April 2013 (published 29 August 2013) accessed at 0k0 13 Ibid. 14 Derived from Evidence for the Report of the Expert Group on Resource Allocation & Financing of the Health Sector, Department of Health, Health at a Glance: Europe 2013, OECD From OECD Stat. Extract accessed 23 January

11 pharmaceutical prices, including prices for prescribed drugs and appliances, appear to have fallen over the same period 17. Tax relief is available for most unreimbursed out of pocket medical and dental expenses, including treatment provided in another jurisdiction 18. Relief is available at the standard rate on the total amount of qualifying expenditure, excluding expenditure which (i) has been reimbursed by another body such as the HSE, a private insurer or other person, (ii) has been/ will be the subject of a compensation payment or (iii) relates to routine dental and ophthalmic care 19. Tax relief is also available in respect of the payment of nursing home fees 20 and, in this instance, can be claimed at the higher rate. The table below outlines the level of tax relief on medical expenses that has been claimed since 2007: Table 2.4: Medical Expenses Tax Relief Relief Paid 225.7m 266.8m 145.5m 126.6m 131m Numbers Availing 496, , , , ,300 Of total, relief relating to nursing homes fees 22 not available not available 23.1m 21.0m not available Private Health Insurance Private health insurance currently covers just under 45% of the Irish population, playing both a supplementary and a complementary role within the Irish health sector and predominately providing cover for hospital care 23. Its supplementary role involves the provision of faster access to health care, including through the use of private healthcare providers, while its complementary role relates to cover for user charges and for services external to the public system 24. Within the private health insurance market, there are four commercial insurers ( undertakings ) which are open to all members of the public, while a further seven provide 17 The Consumer Price Index for Health records an overall increase in health prices of 17% for the period October Within this, prices for hospital services increased by 38.2%. Source: CSO database, accessed on 27 November, A list of health expenses that qualify for tax relief is included at Appendix B. 19 Revenue Commissioners A Guide to claiming Health or Medical Expenses Relief accessed on 08 February 2013 at 20 Hospitals and nursing homes must be on an approved list held by the Revenue Commissioners in order to avail of relief in respect of nursing home fees. 21 Figures confirmed by Income Tax Policy Section, Department of Finance on 25 th April, 2013 and updated by that section in November, Please also note the effect of the change in policy from reimbursing all medical expenses at the marginal rate to reimbursing all expenses, with the exception of nursing home fees, at the standard rate. 22 Estimates produced by Revenue and provided by Income Tax Policy Section, Department of Finance on 26th April, The private health insurance market is governed by principles of community rating, open enrolment and lifetime cover. Community rating requires that the same premium is charged for a particular product to all individuals regardless of individual characteristics. Open enrolment ensures that health insurance is open to any individual under the age of 65 who applies, and lifetime cover obliges the insurance company to renew the insurance contract on an annual basis (provided the individual has not conducted fraud under the insurance contract). 24 Evidence for the Expert Group on Resource Allocation and Financing in the Health Sector (Volume I) p.19, Department of Health,

12 cover only to certain specified segments of the population ( restricted membership undertakings ). The proportion of overall health expenditure relating to private health insurance has increased substantially in recent years, rising from 8% in to 12% in This is reflected in health insurance premiums which have risen sharply in recent times. For example, the average premium paid per insured person (including children) in 2012 was 1,048 ( 838 net of tax relief at source), representing an average increase of 12% from Total expenditure by the population on private health insurance and total expenditure by private insurers on health services is set out in table 2.5 below. Table 2.5: Private Health Insurance Premium Spend & Claims Expenditure Estimated total spending on 1,477m 1,652m 1,847m 1,949m 2,043m 2,241m 28 premiums by the population 27 Estimated total claims 1,154m n/a 1,616m 1,650m 1,704m 1,856m expenditure by open market undertakings 29 Estimated total claims 48m n/a 67m 69m 71m 77m expenditure by restricted membership undertakings 30 Estimated Cash Grant 9m 9m 9.3m 9.6m Payments by Hospital Saturday Fund Estimated expenditure under VHI stand-alone dental scheme 4m Moreover, the actual and proportional increase in private health insurance expenditure has taken place in the context of a contracting private market. As illustrated in table 2.6 below, the number of persons purchasing private health insurance has declined from a peak of 51.7% of the population in Health Systems in Transition. Ireland, WHO, 2009 p76 26 Health Insurance Authority Annual Reports and Accounts 2012, Health Insurance Authority, Source: The Health Insurance Authority has confirmed that these figures include standard tax relief at source and stamp duty levies. They also include the total premium income of registered undertakings ( of 26 th April, 2013 refers). 28 Health Insurance Authority Annual Reports and Accounts 2012, Health Insurance Authority, Please note that figure for 2013 includes income related to Hospital Saturday Fund Cash Plans. 29 Source: Health Insurance Authority. Material derived from reconciliation forms provided by open membership insurers. 30 Figures are estimates based on market share of restricted membership undertakings as published in the Health Insurance Authority Annual Reports and Accounts 2011, Health Insurance Authority,

13 Table 2.6: Private Health Insurance Numbers and Coverage Year Ended Total Insured Persons (000 s) Private Health Insurance Coverage as % of Population , % , % , % , % , % , % , % , % Source: Health Insurance Authority Many of those who have left the market are, on average, younger, leading to concerns regarding the overall sustainability of the private health insurance sector. The HIA Annual Report 2012 notes that between the end of 2009 and the end of 2012 the number of adults aged between 18 and 50 with private health insurance fell by 143,00 (-14%) while the number of adults aged 50+ with private health insurance increased by 32,000 (+5%) 32. In addition, private health insurers report that some of those who have remained have reduced their level of coverage. Private health insurance premiums attract tax relief. Tax relief for medical insurance paid to an authorised insurer is granted at source through the Tax Relief at Source (TRS) system. Subscribers pay a reduced premium equal to 80% of the gross amount to the authorised medical insurer regardless of their actual tax liability. This reduction is the same as giving tax relief at the standard rate of tax (20%). However, in Budget 2014 the amount of premium on which tax relief will be available was capped to 1,000 per adult and 500 per child. The value of the tax reliefs associated with private health insurance is set out in the table below. It should be noted that a separate system of age-related tax credits is used to support risk equalisation within the private health insurance market and that these credits are deducted from the gross premium before the standard tax relief at source is applied (see section 2.3 for further detail). Budget 2014 capped the amount of premium on which tax relief will be available to 1,000 per adult and 500 per child. Only the portion of any premium which exceeds the new thresholds will not qualify for tax relief. The new ceilings will ensure continuing support via the tax system for those who purchase standard policies, while reducing Exchequer exposure to more expensive policies. It is estimated that this measure will affect 577,000 private health insurance policies covering approximately 1.1 million people Latest figure available September 2013, accessed from HIA website January Changes in the age structure of the market are set out at Appendix C in the Health Insurance Authority Annual Report and Accounts 2012, Health Insurance Authority, Parliamentary Questions 46793/2013 and 46794/

14 Table 2.7: Tax relief on private health insurance premiums (standard tax relief only) * 2012* 2013* (e) Medical insurance premiums 300.3m 321m 373.2m 390.1m 404.4m 447.6m 463m relief ( ) Associated number of policies 1,195,300 1,322,400 1,233,900 1,268,400 not available *provisional figures provided by Revenue Commissioners 1,197,500 not available In addition to private health insurance, consumers in Ireland can also avail of health insurance cash plans 35. Under these plans, consumers can receive a cash grant towards the cost of a wide range of treatments, including GP visits, prescriptions, dental, optical and therapy services etc. In 2012, the total value of cash plan claims by the Hospital Saturday Fund was 9.6m. Premium income from all stand-alone cash plans (including some very small restricted undertakings) is less than 1% of total health insurance premium income 36. Finally, VHI healthcare currently offers the only standalone dental insurance scheme in Ireland. In 2011, almost 4m was paid out for dental treatment under this scheme with payments being made directly to customer s bank accounts. Several other insurers provide supplemental dental cover; however, these are not regulated by the HIA. Statutory Charges Many public health services attract statutory charges which may be met by direct out of pocket payments or covered by private health insurance. Generally speaking, all persons with limited eligibility (i.e. non-medical card holders) are liable for the payment of statutory charges 37. These statutory charges are an important source of revenue for the health system. Some of the key statutory charges, and the level of income generated by each, are set out in table 2.8 below. Appendix C provides a breakdown of the figures below in terms of the statutory and voluntary sectors. 34 Figures confirmed by Income Tax Policy Section, Department of Finance on 25 th April, 2013 and updated figures provided by Revenue Commissioners on 21 January There are currently 4 providers in the market offering cash plans, namely the Hospital Saturday Fund, Laya Healthcare, Vhi Healthcare and GloHealth. 36 Information provided by Health Insurance Authority, 2 December Medical Card holders must now pay a prescription charge and are liable for charges raised in respect of longterm residential care. Further detail on the legal basis for statutory charges and the groups liable for/ exempted from different statutory charges is set out in the Policy Paper on Designing the Future Health Basket. 13

15 Table 2.8: Statutory Charges for Public Health Services 38 Type of Charge Revenue Raised 2011 in Revenue raised in 2012 Inpatient Hospital Charges A statutory charge for inpatient and daycase services in public hospitals is currently set at 75 per day and capped at a maximum of 750 in any period of twelve consecutive months 39. It is levied on all patients not covered by exemptions 40. Private Maintenance Charges 41 Private patients treated in public hospitals are also liable for a daily charge set by direction of the Minister for Health. Charges vary depending on type of hospital, type of bed (private/ semi-private) and type of care (inpatient/ daycase) with the average charge equating to about 1,000 per day. Currently, approx. 40% of private patients are not charged due to bed designation regulations. However, a new system of charges for private in-patents came into effect on 1 January 2014 which will provide for the charging of all private patients in public hospitals. Emergency Department Charges A charge of 100 applies for attendance at an Emergency Department except where a person is referred by the GP, is subsequently admitted as an inpatient, is a medical card holder or qualifies under certain other exemptions. Road Traffic Accident Charges The HSE is also able to recover the full economic cost of treatment from a person who received or is entitled to receive damages or compensation arising from a road traffic accident. In such circumstances, economic cost is calculated based on an Annual Daily Charge which is arrived at by dividing a hospital s total expenditure by the total number of bed days for a calendar year. Long Stay Charges Long-stay charges are levied where inpatient services are provided for more than 30 days in a 12 month period 42. A maximum charge of 175 per week is applied where 24 53,162,937 57,790, ,409, ,248,114 17,847,241 17,317,002 7,992,124 9,545,892 80,546,708 83,815, Figures provided by HSE 30 th January The latest full year data available is The amount of this charge will increase to 80 per night up to a maximum of 800 in any period of 12 consecutive months when section 12 of the Health (Amendment) Act 2013 is commenced later this year (2014). 40 Key exemptions include medical card holders, women receiving maternity services, children up to the age of 6 weeks or suffering from certain diseases or defects, people being treated for infectious diseases and Health Amendment Act cardholders. 41 Figure includes the charge in respect of MRI scans for private patients. This currently stands at This applies to individuals requiring non-acute care. 14

16 hour nursing care is provided and 130 per week where nursing care is provided on a less than 24hr basis, regardless of medical card status. Prescription Charges Since 2010 medical card holders have been required to pay a charge for all prescribed items obtained from pharmacies. The current rate is 2.50 per item dispensed, up to a maximum of 25 per month, per person or family. 27,604,000 29,700,000 Total 655,562, ,614, Raising revenue from Pay Related Social Insurance Earmarked revenue for healthcare is also provided on a limited basis via Pay Related Social Insurance (PRSI). PRSI contributions are based on a percentage of the employees reckonable earnings and are payable by both the employer and the employee. Different classes of PRSI contribution exist but most employees are covered by Class A1 which involves an employee contribution of 4% and an employer contribution of 10.75% 43. Contributions are collected by the Revenue Commissioners and paid into the Social Insurance Fund. They are then used to fund social welfare benefits and pensions, including some health related benefits. These health related benefits are provided via the Treatment Benefit Scheme, which is operated by the Department of Social Protection (DSP) and which provides dental, optical and aural services to people who meet the qualifying conditions. In 2012, the number of claims awarded under this scheme stood at 430, The value of such claims in 2010, 2011 and 2012 is set out in table 2.9 below. It should be noted that major changes were made to the Treatment Benefit Scheme in The net effect of these changes, which related to removing entitlements for a range of treatments and appliances, is evident in the significant variation in expenditure between 2010 and Table 2.9: Claims Value of Treatment Benefit Scheme Benefit Type Value of Claims 2010 Value of Claims 2011 Value of Claims 2012 Dental 34,215,000 10,450,000 8,935,000 Optical 9,989,000 4,593,000 3,387,000 Medical & Surgical 7,269,000 7,999,000 6,667,000 Appliances Total 51,473,000 23,042,000 18,989, The income base for PRSI was broadened in Budget 2013 to increase the minimum PRSI liability for selfemployed individuals earning more than 5,000 from 253 to 500 per annum and the weekly 127 exemption for all PRSI contributors was abolished, among other measures. Source: Financial Statement of the Minister for Finance, Mr. Michael Noonan, T.D. 5 th December Annual Statistical Information Report 2012, Department of Social Protection. 15

17 2.3 How Resources are Pooled and Managed Overview The pooling of resources generally refers to the accumulation of prepaid funds on behalf of a population. The concept is fundamental to any insurance system where contributors insure themselves against the often catastrophic cost of an accident or illness. However, it can also be central to a national health system s ability to achieve equity and efficiency objectives. In most countries publicly collected funds for healthcare are pooled nationally, thereby ensuring that the healthier and wealthier subsidise the poorer and sicker, and that resources are used efficiently and in accordance with nationally determined needs. As noted earlier, Ireland has a two-tier health system funded from a mix of public and private sources. Perhaps not surprisingly, it also has two major mechanisms for pooling and managing health resources at a national level. In the case of the public health system, general taxation revenues are pooled centrally by Government and an estimates process is embarked upon to determine the level of expenditure for each Government Department/Agency. In the case of the private health system, community-rated private health insurance premiums are subject to notional pooling via a risk equalisation scheme which balances the resource risk associated with insuring older, sicker customers across the market. In both cases, the pooling of resources achieves a fundamental social solidarity objective, ensuring that the healthier cover the costs of those in need of care. Both systems are also concerned with efficiency: at the heart of the public estimates process lie core decisions on allocative efficiency when choosing between various social and economic programmes, while the risk equalisation scheme is concerned with correcting market failure associated with risk selection, thereby shifting insurer focus back to delivering value for customers as a whole. However, at an overall level, the existence of a separate, voluntary private pool can undermine social solidarity and hamper national visibility and management of healthcare resources. Furthermore, some healthcare resources are not taken account of within either of the aforementioned national pooling mechanisms or are subject to separate pooling arrangements, e.g. medical expenses tax relief and contributions to the Treatment Benefit Scheme. Sections and below provide a more in-depth review of how resources are pooled and managed at a national level in the case of the public health system and the private health insurance system respectively Pooling & Management of Public Health Funds The Irish Constitution lays down the general principle that, unless otherwise provided by law, all revenues of the State must be paid into one fund (called the Central Fund or the Exchequer), on which the Government then draws for expenditure on State services. Government expenditure consists of voted and non-voted expenditure. Voted expenditure (the larger part of Government expenditure) is for the provision of ordinary services by Government Departments and is authorised or voted by the Dáil 45 each year. Non-voted expenditure concerns payments in respect of servicing the National Debt, contributing to the 45 The Dail votes monies on foot of proposals by Government and may not vote money unless it is requested to do so by the Government (Article 17 of the Constitution). 16

18 EU Budget, funding the pensions and salaries of the President, judiciary and the Comptroller and Auditor General etc. 46 Expenditure is provided for under Votes, with one or more Vote covering the functions of each Department or Office. The allocation of expenditure to Votes is determined via the annual Estimates process. In summary, this process begins in June of the previous year with the preparation of projections of revenues and expenditure and the approval by Government of overall budgetary targets. Detailed pre-budget estimates are then prepared and discussed with each Government Department culminating ultimately in a Budget Statement to the Dáil setting out the Government s taxation policy, expenditure decisions and budgetary targets for the coming year. These expenditure decisions are then published in the Revised Estimates Volume and voted on by the Dáil. They are subsequently given statutory effect through the annual Appropriation Act. The Health Group of Votes consists of Vote 38 for the Department of Health and Vote 39 for the Health Service Executive (HSE). Currently, the majority of the health budget is provided via the HSE s Vote. However, the Programme for Government and Future Health, A Strategic Framework for Reform of the Health Service , both commit to ultimately disbanding the HSE Vote and transferring direct control for all public health expenditure back to the Department and the Minister for Health. Comprehensive Review of Expenditure and Programme Based Budgeting During 2011, the Department of Public Expenditure and Reform led a comprehensive review of expenditure to inform the allocation of resources to all Government Departments and their associated agencies for the period The process involved a systematic review of programmes within each Government sector to identify savings and efficiency measures. The resulting Comprehensive Expenditure Report provides an overarching framework for the annual estimates process throughout the period The report identified the following expenditure ceilings and savings requirement for the health sector: Table 2.10: CRE Expenditure Ceilings Ministerial Expenditure Ceiling 47 13,644m 13,565m 13,359m (gross current expenditure) Savings Required 464m 634m 1,084m Employment Control Framework Staff numbers ceiling 103,800 Notwithstanding the above ceilings, the HSE Vote required a supplementary estimate of 360m in 2012 and 199m in The allocation set out in the 2014 Estimates is significantly below the 2014 CRE ceiling and stands at 12,773m. A trend analysis of expenditure across the Health Group of Votes for the period is set out at Appendix D. 46 Public Financial Procedures: An Outline, Department of Finance 47 Savings requirements exceed the reductions in the expenditure ceiling as unavoidable cost pressures and Government Programme items also have to be funded from within the given allocation. 17

19 A further major financial reform initiative launched in 2011 was the move towards programme based budgeting. This is a crucial underpinning for the work of the newly established directorates in terms of identifying clear budgets or funds and allocating resources on the basis of robust performance contracts and Money Follows the Patient payment systems. Programme based budgeting was further developed in the Health Vote in 2013 within the limitations of the existing financial systems. Further progress on programme based budgeting will be driven and overseen by the HSE System Reform Group Pooling & Management of Private Health Insurance Funds A key principle of the Irish private health insurance market is community rating. This requires that each person is charged the same premium for a particular product regardless of individual characteristics or health status. In order to provide for community rating, a scheme of risk equalisation, which subsidises the cost of insuring older and sicker lives, is essential. The Health Insurance (Amendment) Act 2012 provided for the introduction of a permanent Risk Equalisation Scheme (RES) in the private health insurance market with effect from 1 st January This scheme enables resources to be pooled and redistributed throughout the private health insurance system in accordance with specified individual risk factors so as to compensate for such factors within the confines of a community-rated, as opposed to a riskrated, market. Resources are pooled into a central Risk Equalisation Fund (REF) 48, administered by the Health Insurance Authority, from which risk equalisation credits are then paid. These credits are calculated with reference to specified risk factors, with different credit levels payable in respect of insured persons aged 60 years and over, based on age, gender and type of insurance cover. There is also a 75 hospital bed utilisation credit in respect of each hospital episode involving an overnight stay in private accommodation. The current level of credits, and those to come into effect from 31 March 2014 is set out in table 2.11 below. Table 2.11: Risk Equalisation Credits 49 Age Bands (years) Age-related credit from 31 March 2013 Age-related credit from 01 March 2014 Non-advanced Advanced Non-advanced Advanced Men Women Men Women Men Women Men Women 59 and Nil Nil Nil Nil Nil Nil Nil Nil under , , , ,700 1, ,850 1, Section 15 of the Health Insurance (Amendment) Act 2012 amends section 11 of the Health Insurance Act 2004 to provide for the creation of the Risk Equalisation Fund, to comprise a current account and an investment account, and to be established and administered by the Health Insurance Authority. 49 Schedule 2 of the Health Insurance Act 1994 as amended by section 21 of the Health Insurance (Amendment) Act 2012 and Department of Health press release Minister Reilly announces changes to Risk Equalisation Credits to protect community-rates health insurance for all, 12 November Accessed at 18

20 ,050 1,550 2,425 1,800 1, ,500 1, ,850 1,925 3,375 2,275 1,575 1,150 3,200 2,250 Risk equalisation credits are provided for at source, i.e. the gross cost of the policy is reduced by the amount of the credit. Private health insurers then submit a claim to the Health Insurance Authority for reimbursement of the credits from the REF, on behalf of qualifying policy holders. They also submit claims for amounts due in respect of hospital bed utilisation credits. The credits, in turn, are funded from a stamp duty payable by private health insurers in respect of each insured life. The Revenue Commissioners are responsible for collecting this duty which is then transferred to the REF. There are four rates of stamp duty depending on whether the policy provides for non-advanced or advanced cover and whether the insured person is an adult or a child. The stamp duty rates are set by the Minister of Finance having regard to the recommendations of the Minister for Health which, in turn, are informed by reports submitted by the Health Insurance Authority. Current stamp duty rates, as well as planned stamp duty rates for 2014 (i.e. rates with effect from 1 March ), are set out in table 2.12 below. Table 2.12: Rates of Stamp Duty under the RES for 2013 and 2014 Community Rating Levy Non-Advanced Cover Non-Advanced Cover Advanced Cover Adult Child Advanced Cover 2014 These rates have been calculated so as to raise the total stamp duty required to fund risk equalisation credits on a budget neutral basis in the year in question. The overall risk equalisation process is illustrated in figure 2.4 below: Figure 2.4: Risk Equalisation Process 50 Press release Minister Reilly announces changes to Risk Equalisation Credits to protect community-rated health insurance for all, 12 November Accessed at 19

21 6. Insurers make a claim to REF for reimbursement of credits on a monthly basis 5. Stamp duty monies in the fund are used to pay for risk equalisation credits 1. Stamp duty imposed on policy & incorporated into cost of the policy for the consumer HIA: Risk Equalisation Fund (REF) 4. Revenue Commissioners pass the stamp duty funding to the REF 2. Credits are applied to the gross cost of a policy and policy cost is subsequently reduced for qualifying persons 3. Stamp duty is collected by the insurers and forwarded to Revenue Commissioners Finally, as noted earlier, several private health insurers have restricted membership. These undertakings are not competing with open membership insurers and, therefore, are not included within the risk equalisation scheme. Health insurance cash plans are also not subject to risk equalisation. This results in approximately 5% of private health insurance funding which is not subject to pooling and redistribution via the risk equalisation scheme Treatment Benefit Scheme As outlined in section 2.2, healthcare is also funded to a limited extent via the Treatment Benefit Scheme. The PRSI contributions, which are used to fund this scheme, are pooled into a central fund, the Social Insurance Fund 51, from which estimates of expenditure are sanctioned (voted) and payments are then made. In terms of national management of Social Insurance Fund, the Social Welfare Consolidation Act 2005 provides that the Fund must be subject to actuarial review every five years. 2.4 How Resources are Allocated Overview Just as previous sections noted a multiplicity of sources for raising health revenue and a multiplicity of arrangements for pooling that revenue, this section considers the differing principles and mechanisms which underpin the subsequent allocation of revenue from the various health pools. In summary, the public health system uses a national service planning process to set prospective budgets for different service areas and providers. By contrast, the private health insurance system, while agreeing prices in advance, generally operates on a retrospective basis, with funding allocated on receipt of patient claims and overall expenditure thus 51 The Social Insurance Fund comprises a current account and an investment account, and is operated by the Department of Social Protection. 20

22 determined on a largely demand-led basis. The Treatment Benefit Scheme similarly uses provider contracts to pre-agree prices but then makes payments based on demand. Finally, the systems of tax relief for both medical expenses and private health insurance are retrospective, with overall expenditure determined by both the volume and cost of claims received. The one exception is the recent policy change whereby tax relief on health insurance premiums is capped based on a maximum premium of 1,000 per adult. Sections to explore each of these mechanisms in more detail Allocation of Public Funds Allocation of Resources by the HSE The HSE is, essentially, the central hub for the distribution of public funding for health services. Its pooled resources, captured within the HSE Vote, are allocated by service and by region through the annual service planning process. This process is set out, at a high-level, in the Health Act The Act requires the HSE to prepare a National Service Plan and submit it for approval by the Minister for Health within 21 days of the publication of the Estimates. The Minister, in turn, is required to lay the plan before both Houses of the Oireachtas within 21 days of approving it 52. The preparation of the plan is undertaken by the HSE, in consultation with the Department of Health. Building on the overall budget framework agreed as part of the Estimates process, it sets out the type and volume of health and personal social services to be delivered by the HSE in the coming year for the monies allocated to the HSE Vote, and is intended to reflect the Government s priorities for the health service as set out in the Programme for Government, Future Health and the Department of Health s Statement of Strategy. In 2013, a National Operational Plan was developed to support the implementation of the National Service Plan. The purpose of the Operational Plan is to set out a national position for each main Care Group/Programme in order to guide the translation of national policy into four regional service plans and three hospital group plans. 53 Throughout the year, the Department of Health monitors and evaluates the implementation of the National Service Plan, including HSE income and expenditure levels. The HSE s cash expenditure may not exceed its voted allocation in any given year, while any underspend of its allocation must be surrendered back to the Exchequer. HSE Service Plan for In 2013, the HSE Vote was allocated to programme areas on the basis of the 2012 financial outturn position, with some adjustment for unavoidable pressures and a required expenditure reduction of 721m 55. The 2013 allocations, as well as a comparison against 2012 allocations, are set out in table 2.13 below. However, in reviewing the 2013 allocations, it 52 There is also a time limit in relation to approval of the plan by the Minister. The Minister has 21 days from receipt of the National Service Plan to either approve the plan or issue a direction to the HSE in relation to its amendment. 53 National Operational Plan 2013, HSE, The section below outlines the allocation process in 2013 as this provided the most comprehensive data at the time of completion of this report. 55 This represents a departure from previous years where allocations were strongly determined by historic budget allocations rather than by final expenditure patterns. 21

23 should be noted that the HSE incurred a budget overrun for 2013 which required seeking a supplementary estimate in the order of 199m. Table 2.13: HSE Budget Allocation by Care Group in 2013 Source: HSE National Service Plan 2013 A brief snapshot of each programme area, in terms of services provided, main allocation mechanisms and planned reforms, is provided in the subsequent sections. Acute Hospital Services: Acute public hospital services are delivered to the whole population by a network of 48 public and voluntary hospitals. Each hospital is allocated a fixed annual budget as set out in the National Service Plan 56. Hospitals have been subject to significant budgetary reductions over the past number of years, absorbing reductions in the region of 20+% over the period Indeed, during the past 15 years, acute spending as a proportion of overall health spending has declined from 50% of the budget in 1998 to 38% in 2006, and currently stands at just over a third of the total HSE allocation. In order to drive further efficiency in the provision of hospital services, the Government has set out an ambitious reform agenda, involving the organisation of all public acute hospitals into a small number of Hospital Groups and the introduction of a new performance contracting process which will see Groups funded on a Money Follows the Patient basis (albeit within an overall global cap). In the National Operational Plan 2013 the level of resources allocated to the Acute sector, including ambulance services, was as follows: WTEs Budget End Dec 2012 End Dec % Change Ceiling Projected 47,524 47,190 3,978m 4,117m 3.5% While voluntary hospitals are permitted to retain their full allocation regardless of final expenditure, any underspend of a HSE hospital s allocation must be returned. It could be argued that this creates a perverse incentive to focus on spending the full allocated budget rather than seeking efficiencies. 57 Part of the additional funding for the acute sector in 2013 has been allocated to Ambulance Services ( 12.2m) and for demographic pressures for renal services ( 3.35m). 22

24 Primary Care Services and Community Schemes: The Government is also committed to reform and significant strengthening of the primary care sector through the expansion of primary care teams, investment in primary care infrastructure and the introduction of free GP care for all. Budget 2014 pledged 37 million for the introduction of free GP care to every child under six years of age in Ireland. In the National Operational Plan 2013 the level of resources allocated to primary care (i.e. HSE provided primary care services) was: WTEs Budget End Dec 2012 End Dec % Change Ceiling Projected 9,231 9, m 400m 7.6% 58 Additionally, a significant proportion of primary care services are provided via community demand-led schemes. These schemes are managed by the Primary Care Reimbursement Service (PCRS) which makes payments to contractors based on (i) national contracts and fee rates set by the Minister under the Financial (Emergency Measures in the Public Interest) Act 2009, and (ii) numbers/ claims of qualifying individuals. The various schemes and arrangements which the PCRS fund includes: General Medical Services GP Visit Cards Drugs Payment Scheme Long-term Illness Scheme High Tech Drugs Scheme Dental Treatment Benefit Scheme Community Ophthalmic Scheme Childhood Immunisation Scheme Immunisation for Eligible GMS Persons Health Amendment Act 1996 Services Methadone Treatment Scheme European Economic Area The National Operational Plan 2013 identified the level of resources to be allocated to the community demand-led schemes as: Budget % Change 2,518m 2,562m 1.7% However, while the plan sets out an allocation for community schemes, in reality, these schemes are demand-led, with expenditure largely contingent on the numbers of people qualifying for services. In 2012, over 3.4m people accessed community services via 6,500 primary care contractors. Over the past number of years, there has been strong growth in the numbers qualifying for these schemes and, consequently, growth in expenditure. In particular, the number of medical card holders increased from 1.69 million in 2012 to 1.84 million in December Currently, 40.3% of the population holds a medical card, while a further 2.7% holds a GP visit card. 58 Of this increased budget, 20m has been allocated to support recruitment of additional posts for primary care teams. 23

25 Children & Family: The HSE provides a wide range of child and family services including social work services, adoption services, residential care for children, foster care, child sexual abuse treatment services etc. A major reform agenda in this area is the creation of a dedicated Child and Family Support Agency which will subsume responsibility from the HSE for the delivery of the above services. The agency, which will have its own budget, was established on 1 st January 2014 and its budget will now come under Vote 40 for the Department of Children. The National Operational Plan 2013 identifies the level of resources allocated to Children and Family services as: WTEs Budget End Dec 2012 End Dec % Change Ceiling Projected 3,552 3, m 541m -0.5% Mental Health: Mental health services comprise a broad range of primary and community services as well as specialised secondary care for children, adolescents, adults and older persons, including suicide prevention services. Service development is guided by A Vision for Change, the national policy framework adopted in 2006, and funding is distributed on a block grant basis. The National Operational Plan 2013 identified the level of resources allocated to Mental Health services as: End Dec 2012 Employment Ceiling WTEs End Dec 2012 Projected Budget % Change 8,837 8, m 733m 3.1% Disability Services: Disability services provide a range of supports for people with intellectual, physical and sensory disabilities. The services include basic healthcare as well as assessment, rehabilitation, income maintenance, community care and residential care services. The 2012 Report of the Value for Money and Policy Review of the Disability Services Programme sets out a new framework for the provision of disability services which will fundamentally transform how resources are allocated within the sector. Ultimately, this will see a shift away from fixed grant allocations for providers and towards a personalised budget model. The National Operational Plan 2013 identified the level of resources allocated to Disability services as: End Dec 2012 Employment Ceiling WTEs End Dec 2012 Projected Budget % Change 24

26 15,288 15,180 1,554m 1,535m -1.2% Older People Services: Services for Older People can be disaggregated into communitybased services and long-term residential care services. In each case, a blend of health care and social care supports is provided. Community-based services comprise home help, home care packages, respite and convalescent care, day care, meals on wheels and elder abuse services. Generally speaking, community services are financed by means of block allocations to each local area, although home care package supports are subsequently allocated to individuals on the basis of a care needs assessment. In addition, a procurement framework has been put in place nationally in respect of contracting service providers for the delivery of home care packages. Public resources in respect of long-term residential care are allocated via the Nursing Homes Support Scheme (Fair Deal). This scheme provides financial assistance to all qualifying persons requiring long-term nursing home care, subject to an overall budget cap. Financial assistance is based on qualifying under both a care needs and a means assessment, and is paid to the person s chosen nursing home whether public or private 59. The National Operational Plan 2013 identified the level of resources allocated to older persons services as: WTEs Budget End Dec 2012 End Dec % Change Ceiling Projected 9,833 9,764 Comm. Services 403m 392m -2.6% NHSS 994m 998m 0.4% Palliative Care: Palliative care services seek to improve the quality of life of patients and their families who are facing the challenges associated with terminal illnesses. While the HSE provides fixed grant allocations to palliative care providers, a notable feature of this service area is the strong involvement of voluntary service providers and the significant role of voluntary (charitable) contributions. The National Operational Plan 2013 identified the level of resources allocated to palliative care services as: WTEs Budget End Dec 2012 End Dec % Change Ceiling Projected m 72m -1.6% Social Inclusion Services: These services seek to tackle poverty and social exclusion, to improve access to health services for vulnerable groups and to reduce inequalities in health. They comprise services related to addiction, alcohol, homelessness and gender-based 59 Maximum prices for nursing home care are agreed and published in advance. The NTPF is responsible for negotiating prices with all private nursing home providers who wish to participate in the scheme. 25

27 violence, as well as services supporting particular groups such as intercultural health, Irish Traveller & Roma, Lesbian, Gay, Bisexual and Transgender populations. The National Operational Plan 2013 identified the level of resources allocated to social inclusion services as: WTEs Budget End Dec 2012 End Dec % Change Ceiling Projected m 114m -1.0% Pay and Pay related Expenditure The HSE is both the main purchaser and the main provider of public health services in Ireland. Accordingly, when considering funding allocations, one must remain cognisant of corresponding fixed pay costs. At the end of 2013 it was estimated that the number of whole time equivalent (WTE) staff employed by the HSE was 100, with pay and pensions accounting for 52.4% of its overall budget 61. Since September 2007, the HSE has reduced its workforce by over 12,000 WTEs and has a requirement to further reduce its headcount to 98,000 WTEs and to implement payroll reductions of 268m during Allocation from other Public Pools While the majority of direct public expenditure on health is channelled through the HSE Vote, 2% is also provided via the Department of Health Vote 63. The Department provides grant allocations to a number of bodies. Of these, two relate directly to the provision of frontline health and personal social services, namely grant allocations in respect of drugs initiatives and allocations to the National Treatment Purchase Fund/ Special Delivery Unit. Drugs Initiative: The Department allocates funding to Local and Regional Drugs Task Forces, in addition to a small number of other bodies. Drugs Task Forces are tasked with assessing the nature and extent of drug problems in their areas and developing local/ regional strategies and action plans in order to provide a co-ordinated and targeted response at local level. Services provided include drug-related treatment and rehabilitation (community-based and residential), counselling, youth drug prevention work, family support services for those affected by addiction and measures aimed at reducing the supply of illegal drugs in communities. The Task Forces are required to evaluate these services at the end of the funding year and make recommendations on individual project allocations. From January 2014, responsibility for funding community-based and residential treatment and rehabilitation services will rest with the HSE. Funding for all other community drugs initiatives remains with the Department of Health. A review of Drugs Task Forces was undertaken in 2012 which recommended a series of reforms, including the extension of services to include alcohol addiction and proposals to simplify Task Force boundaries. These reforms remain under consideration. 60 Figure taken from the HSE National Service Plan Author s calculation based on total Exchequer pay and pensions figures listed under Vote 39 in REV 2013 as a percentage of total net expenditure. 62 HSE National Service Plan Author s calculation based on voted allocations for the Department of Health and the HSE (total net expenditure). 26

28 The total allocation under the drugs initiative for 2013 was 28.95m (gross current estimate). National Treatment Purchase Fund (NTPF)/ Special Delivery Unit (SDU): The role of the National Treatment Purchase Fund (NTPF) is aligned with the Special Delivery Unit (SDU) objectives. The NTPF works alongside the SDU to unblock access to acute services by improving the flow of patients through the hospital system and by streamlining waiting lists, including referrals from GPs. Essentially, the NTPF acts as SDU s scheduled care team, collecting and publishing inpatient, daycase and outpatient waiting list information and, until recently, providing targeted funding in order to reduce inpatient waiting lists and tackle identified backlogs within the acute hospital system. The NTPF future role is under consideration in the context of the structural reforms set out in Future Health A Strategic Framework for Reform of the Health Service Health sector reform plans mean that the strategic purchasing role of the NTPF will, over time, be subsumed into the new purchaser of public services, the Healthcare Commissioning Agency. As part of this, its funding will be merged with the HSE acute hospital budget and allocated to Hospital Groups under a new integrated performance contracting approach which will see all services funded on a Money Follows the Patient basis. The combined 2013 allocation for NTPF/SDU as set out in the Revised Estimates of Expenditure 2013 was 13.9m. However, this has been reduced in 2014 to 5.95m Allocation of Private Health Insurance Funds Whereas public funds are allocated via a single national plan, the private insurance market is characterised by multiple insurers concluding contracts with multiple providers. Insurer contracts with private hospitals and consultants set out maximum fee rates per procedure. By contrast, fee rates for private treatment in public hospitals are set on a national basis by direction of the Minister 65 and contracts between private health insurers and the public hospital system have not been in place for some years now. In terms of funding flows, it is estimated that aggregate allocations by private health insurers to the different types of healthcare providers are as follows 66 : Public Hospitals- 28% Private Hospitals- 46% Hospital Consultants- 20% Outpatient/ Ambulatory- 6% In the case of inpatient care, private health insurance funds are allocated on the basis of the submission by providers of fully collated claims. This direct payment of providers is a significant feature of the Irish private health insurance market as it relates to inpatient care, with individuals rarely required to meet inpatient costs upfront and seek retrospective 64 Revised Estimates for Public Services 2014 Department of Public Expenditure and Reform 65 As noted in section 2, per diem charges vary depending on whether treatment was delivered on an inpatient or daycase basis and according to accommodation and hospital type. 66 Review of Measures to reduce costs in the Private Health Insurance Market 2013: Independent Report to the Minister for Health and Health Insurance Council. 27

29 reimbursement 67. By contrast, outpatient claims must normally be paid upfront and then submitted to the insurer for reimbursement at the end of the policy year. The private health insurance market does not operate within any form of explicit overall budgetary or volume cap. Pre-authorisation is similarly not a significant feature of the market. As such, funds are essentially allocated on a demand-led basis with utilisation management review acting as a core tool for managing cost 68. However, this technique can also result in higher administrative costs, lengthened claims payment times and an increase in pended claims which, in turn, can significantly affect the cashflow position of providers. In conclusion then, it could perhaps be argued that the allocation model within the private health insurance market results in a notable degree of uncertainty for insurers in terms of overall expenditure and a comparable degree of uncertainty for providers in terms of cashflow Treatment Benefit Scheme The Treatment Benefit Scheme operates similarly to the private health insurance market in terms of the basic principles underpinning allocation of funds. The qualification criteria for the scheme as well as the services covered by it are clearly stipulated in law 69. Only individuals with the requisite number of contributions under PRSI Classes A, E, H and P, and certain of their dependents, can avail of the Treatment Benefit scheme. The services covered are: Dental Benefit- full cost of an oral examination once per calendar year. Optical Benefit- free eyesight test and a maximum payment of 500 towards the costs of contact lenses required on medical grounds. Aural Benefit- half the cost of hearing aids up to a maximum of 500 for each hearing aid every four years and half the cost of repairs for hearing aids. In terms of the operation of the scheme, the Department of Social Protection concludes contracts with relevant service providers who are then placed on a panel. Qualifying individuals can obtain treatment from any provider on the panel. The payments arising from the Treatment Benefit scheme are made directly to the service providers on a monthly basis. Payment is only made on receipt by the Department of Social Protection of an authorisation form duly certified by the claimant and the panelist that the listed treatment has been completed Cash plans would be an exception in this regard. 68 Utilisation review involves the intensive analysis of the necessity, appropriateness and efficiency of healthcare services. This can include consideration of appropriateness of admission, services ordered and length of stay. 69 The main legislative provisions are contained in (1) Chapter 22 of Part II of the Social Welfare Consolidation Act, 2005 as amended (and regulations made thereunder especially SI 142 of 2007 which consolidated previous regulations and SI 578 of 2009), (2) Title II, III (Chapter I) and VI and Annex VI of Council Regulation (EEC) No. 1408/71 and (3) Title II, IV (Chapters 1 and 2) and VI of Council Regulation (EEC) No. 574/ While, in practice, no caps are placed on provider contracts or on the number of qualifying individuals who can avail of services, section 138(3) of the Social Welfare Consolidation Act 2005 provides that payments under the scheme shall not exceed in aggregate sums agreed between the Minister for Social Protection and the Minister for Finance. 28

30 2.4.5 Tax Relief on Medical Expenses and Private Health Insurance As noted in section 2.4.1, tax reliefs are paid retrospectively and on a demand-led basis with the exception of the new cap on tax relief for private health insurance premiums. 29

31 2.5 Summary Overview Overview of Funding Flows This chapter has painted a high-level picture of current health sector funding flows in Ireland, including how resources are raised, how they are pooled and managed, and how they are allocated across the public and private sectors. The resulting canvas reveals a complex array of funding arrangements which intersect in various ways. Notwithstanding the intricacy of these arrangements, figure 2.5 below provides a simplified illustration of these macro-funding flows using 2011 data. It demonstrates how the Government supports healthcare through four different channels, namely (1) through the direct provision of funding to the Department of Health and HSE ( 12,400m), (2) through the payment of tax relief at source on private health insurance premiums ( 404m), (3) through the social insurance system (treatment benefit scheme- 23m) and (4) by reimbursing individuals directly in respect of out of pocket medical expenses ( 131m). The HSE is both a provider and a purchaser of services. As a provider of health services, it obtains the vast majority of its funding directly from the Exchequer but also receives monies in respect of statutory charges from individuals and private health insurers. As a purchaser of services, it makes payments to private providers (e.g. GPs, nursing homes), as do several other purchasers: individuals, insurers and the Department of Social Protection. Finally, the figure illustrates how individuals, while paying 1.6bn in net health insurance premiums, actually pay considerably more in direct, out of pocket payments for public and private health services ( 2.56bn). 30

32 Figure 2.3: Macro Funding Flows across the Irish Health System- based on 2011 data 71 PRSI Contributions 23m 12,400m Government Taxation Med Expense Relief PHI Relief m 131m Individuals 404m 2,558m 1,639m Social Insurance Fund DoH/HSE Insurers Private Providers (eg. GPs, Dentists, Private Nursing Homes etc.) 71 It should be noted that the direct taxation figure of 12,400m includes HSE funding relating to child protection services. Under the Government s plans, a new Child and Family Support Agency was established 1 Jan 2014 which will have responsibility for the future delivery of such services and now comes under the Vote of the Department of Children. 31

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