Approaching health system financing policy decisions: objectives, instruments and the sustainability dilemma Health Systems Financing Programme Division of Country Health Systems Tamás Evetovits Senior Health Financing Specialist WHO EUROPE, Barcelona Office Tallinn, 3 April, 2009.
Outline WHO s guide to health financing policy analysis Sustainability: definitions, challenges and trade-offs decisions Illustrations and lessons from abroad 2
Health financing policy analysis and viable options for reform Descriptive framework Policy objectives Fiscal context Starting point, direction, and reality check Where are we starting from? Where should we go? What kind of vehicle can we afford? How far and how fast? Source: Kutzin, J (2008) Health financing policy: a guide for decision-makers
Health financing within overall system How health financing can influence goals Health system goals (WHR2000) Resource generation Health financing system Equity in utilization and resource distribution Quality Health gain Equity in health Stewardship Revenue collection Pooling Purchasing Benefits Efficiency Transparency and accountability Financial protection Equity in finance Service delivery Choice Responsiveness 4
Policy objectives What objectives do we want to maximize? INTERMEDIATE OBJECTIVES Efficiency ULTIMATE OBJECTIVES Health outcomes Level and distribution Equity in access Quality Financial protection and equity in finance Responsiveness / satisfaction Improvements may positively affect different objectives at the same time, but in many cases trade-offs are involved 5
Defining sustainable health financing What level of attainment of the health policy objectives are you willing to -collectively- pay for? How much do we value what the health system can produce (as opposed to other -publicly funded- goods and services)? What level of attainment of the health policy objectives can you sustain, given your fiscal constraints? Financial sustainability should not be seen as a policy objective worth pursuing for its own sake, but as a constraint that needs to be respected. If it was an objective, then a simple cost cutting execise will do the job! 6
Asking the right questions What mix of objectives reflect the changing values of the societies? Sustainability of the trade-offs E.g.: What level of inequity is socially sustainable? Erosion of solidarity: How much are the rich willing to subsidize the poor? What level of progressivity of financing is sustainable/acceptable? What level of coverage for all are you willing to pay for? These quetions become more apparent when economy is shrinking, the fiscal space is shrinking or the value foundations of the health system weaken 7
No easy answers There will always be trade-offs. Everyone wants a system that is free of charge at the point of service, provides instant access, and is of high quality. The best that can be hoped for is two out of three. But at least the choice is yours! 8
Objectives and instruments Financial sustainability is primarily a question about values and preferences of the society in pursuing different social objectives Sustainability of the social health insurance system that is based on payroll tax is a secondary question It is about the sustainability of an instrument we choose to achieve objectives 9
Implications for health financing (1) Near exclusive reliance on wage based taxation may not be sustainable as a source of funds for health insurance Macroeconomic and employment consequences will require diversification and increasing delinkage of health entitlement from labor-related contribution Sources decision increasingly driven by tax policy Health insurance arrangements are in the sphere of public policy: think of insurance as a function and not as an institution Source: modified after Kutzin, 2007 10
Implications for health financing (2) Balancing public expenditures with ex ante decision about the level of public revenues to be made available for the sector Reflects (normative) position that the level of public spending should not be the product of a formula (e.g. contribution rate), but rather a political choice based on a comprehensive fiscal framework Reflects technocratic desire towards explicit decision making process (may not always be realistic) Source: modified after Kutzin, 2007 11
Reducing the severity of the trade-offs 1. Set realistic objectives and accepting/making trade-offs decision Adjusting public-private expenditure to reflect preferences of the society 2. Secure sufficient revenue for achieving objectives Priority to health in public expenditure If you have to cut expenditure, then be selective and clear about priorities (or rather posteriorities) 3. Improve the efficiency of resource use Collection Pooling Purchasing 12
Sustainability trade-offs The need to give up something in order to meet the fiscal sustainability requirement (and as a result settle for lower financial protection, solidarity, access to services, quality etc.) Fiscal sustainability requirement Explicit rationing Implicit rationing Price (formal copays & service exclusions) Non-price (wait lists, service excl.) Price (informal payments) Non-price (service dilution, delay, denial) access barriers, financial burden access barriers, dissatisfaction access barriers, financial burden, lack of transparency less health gain, reduced access, dissatisfaction, lack of transparency
What coverage do you cut? Cost-sharing Uncovered services Depth: How much of the costs are covered? Total health expenditure uninsured Publicly financed health care Scope: Which services are covered? Breadth: Who is insured? Where is clinical quality (and service quality) in this chart? 14
Empirical evidence for the discussion on options DATA CAN HELP MOVE THE DEBATE TO A MORE HONEST AND CONSENSUAL UNDERSTANDING OF THE OPTIONS AVAILABLE, SO THAT MYTH, IDEOLOGY AND GROUP INTERESTS WILL NOT DOMINATE AND DRIVE A DEBATE Roberts M, Hsiao W, Berman P and Reich M. 2004, Getting Health Reform Right, Oxford University Press, p. 25 15
Which one is Estonia? 10 Total health expenditure as % of gross domestic product (GDP) 9 8 7 6 5 Estonia Hungary Latvia Lithuania Poland Slovakia Slovenia European Region EU EU members before May 2004 EU members since 2004 or 2007 4 3 2 1990 2000 2010 2020 16
General government expenditure on health as % of GDP and GDP of selected European countries, 2006 10.0 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 Republic of Moldova Kyrgyzstan Tajikistan Georgia Kazakhstan Albania Azerbaijan Croatia TFYR of Macedonia Serbia Belarus Bulgaria Lithuania Latvia Hungary Slovakia Russian Federation Portugal Estonia Malta Slovenia Czech Republic Italy Spain France Germany Sweden Belgium Finland Denmark Netherlands Switzerland Norway R 2 = 0.6669 0 10000 20000 30000 40000 50000 60000 17
Accounting for government spending on health Gov t health spending GDP = Total gov t spending GDP X Gov t health spending Total gov t spending Government health spending as share of the economy Fiscal context Public policy priorities 18
total gov't spending as % GDP 60 50 40 30 20 10 0 Source: WHO, 2009 19 Turkmenistan Armenia Kazakhstan Azerbaijan Uzbekistan Albania Kyrgyzstan Russian Federation Tajikistan Switzerland Turkey Slovakia TFYR Macedonia Estonia Latvia Lithuania Georgia Ireland Romania Luxembourg Spain Cyprus Norway Bulgaria Bosnia and Herzegovina Republic of Moldova Poland Malta Croatia Iceland Ukraine Slovenia Serbia United Kingdom Germany Israel Czech Republic Netherlands Portugal Montenegro Finland Italy Austria Belgium Belarus Hungary Denmark France Sweden Greece Fiscal context: relative size of the government
Health as % of total government spending 20 15 10 5 0 Source: WHO, 2009 20 Tajikistan Georgia Azerbaijan Cyprus Uzbekistan Kyrgyzstan Ukraine Belarus Albania Latvia Poland Bulgaria Israel Turkey Greece Kazakhstan Russian Federation Romania Armenia Hungary Estonia Lithuania Republic of Moldova Finland Montenegro Czech Republic Slovenia Bosnia and Herzegovina Malta Italy Sweden Serbia Belgium Slovakia Turkmenistan TFYR Macedonia Portugal Spain Austria United Kingdom France Netherlands Luxembourg Ireland Iceland Croatia Germany Norway Switzerland Denmark Priority given to health in the European Region (2007)
Health as % of total government spending 20 15 10 5 0 Cyprus Source: WHO, 2009 Latvia Poland Bulgaria Greece Romania Hungary Estonia Lithuania Finland Czech Republic Slovenia Malta Italy Sweden Belgium Slovakia Portugal Spain Austria United Kingdom France Priority given to health in the EU countries (2007) Netherlands Luxembourg 21 Ireland Germany Denmark
CZE 60 50 40 30 Total government expenditure % GDP GGE on health as % of GGE 20 Out of pocket spending % THE 10 GGHE%GDP 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Source: WHO, 2009 22
SVN 60 50 40 Out of pocket spending % THE 30 Total government expenditure % GDP 20 GGE on health as % of GGE 10 GGHE%GDP 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Source: WHO, 2009 23
Estonia 45 40 35 30 25 20 15 10 5 0 Out of pocket spending % THE Total government expenditure % GDP GGE on health as % of GGE GGHE%GD P 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Source: WHO, 2009 24
OOPs in EST in an EU perspective 25
Measuring the objectives(1): changes in financial protection in Estonia Percent of households incurring high level of outof-pocket spending Percent of households impoverished by out-ofpocket health spending Percent of households 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 3.4% 6.4% 7.4% Percent of households 1.5% 1.2% 0.9% 0.6% 0.3% 1.0% 1.3% 1.4% 0.0% 1995 2001 2002 0.0% 1995 2001 2002 Source: Habicht et al. (2006). Detecting changes in financial protection: creating evidence for policy in Estonia. Health Policy and Planning 21(6): 421-31. 26
Reducing the ability to sustain financial protection in Estonia (by choice?) Actual and simulated health spending patterns in Estonia Total public spending as % GDP Health as % total public spending Public spending on health as %GDP OOPS as % total health spending 1996 42.3% 14.0% 5.9% 11.5% 2003 36.7% 11.2% 4.1% 20.3% 2003 with 1996 priorities 36.7% 14.0% 5.1% 13.8% Source: WHO health expenditure estimates and analysis Government health spending fell and out-of-pocket spending increased in part due to overall fiscal contraction but mostly due to a shift in priorities away from health. In a sense, the government decided (implicitly) to have a lower level of financial protection. 27
Measuring the objectives(2): equity in service use in Ireland Shares of service use by household income level, Ireland 2000 Percent of service use 35 30 25 20 15 10 5 In patient nights Doctor visits Dentist visits 0 Q1 Q2 Q3 Q4 Q5 Disposable income quintile Source: Layte R, Nolan B (2004). Equity in the utilization of health care in Ireland. Dublin: Economic and Social Research Institute. 28
One of the few: Canada 500 450 400 350 300 250 200 150 100 50 0 Benefits Tax contributions 1st 2nd 3rd 4th 5th 6th 7th 8th 9th 10th Benefits and tax contributions in mn C$ Family income decile Source: Mustard et al (1998); Evans (2002) 29
Is this desireable/acceptable? Proportion of households with high health payments (above 20% of capacity to pay) 25% 20% 15% 10% 2001 2003 2005 2007 5% 0% 1 2 3 4 5 Total 2001 13.9% 10.7% 5.2% 3.8% 2.5% 7.2% 2003 19.4% 11.6% 8.2% 6.2% 4.3% 10.0% 2005 17.8% 15.5% 9.8% 3.4% 3.2% 9.9% 2007 21.9% 18.8% 9.7% 5.1% 5.1% 12.1% quintile (poor-rich) 30
Which one is Estonia? 2000 100% 80% 60% 40% 20% 0% 1 2 3 4 5 Total Outpatient 11% 14% 19% 34% 43% 32% Inpatient 0% 0% 0% 0% 8% 4% Medicines 83% 76% 68% 48% 32% 49% Supply 5% 10% 14% 18% 18% 15% quintile (poor-rich) Outpatient Inpatient Medicines Supply 100% 80% 60% 40% 20% 0% Distribution of OOPs across medical services and goods per quintiles 2007 1 2 3 4 5 Total Outpatient 9% 10% 16% 24% 29% 21% Inpatient 1% 3% 3% 1% 7% 4% Medicines 84% 75% 69% 50% 33% 53% Supply 6% 11% 12% 24% 32% 22% quintile (poor-rich) Outpatient Inpatient Medicines Supply 31
Drug consumption is boxes (2004) Netherlands Denmark Norvay Sweden Finnland Estonia Germany Switzerland Ireland UK Austria Belgium Latvia Potugal Lithuania Slovenia Czech Rep. Luxembrg Spain Italy Poland Hungary Greece France Source: OECD 0 10 20 30 40 50 32
Pharmaceuticals are the single largest cost driver in almost all countries Annual growth in drug expenditure and in total health expenditure, 1998 to 2003 %Drug expenditure Total health expenditure 12.8 11.4 12.7 10.2 9.6 4.6 9.1 4.3 8.3 6.9 7.9 4.9 7.0 6.5 6.4 4.2 6.0 4.1 5.8 3.5 5.6 5.9 5.4 1.8 5.0 4.6 4.6 2.8 4.1 5.4 4.0 5.4 3.7 5.3 3.5 1.8 3.4 2.6 3.4 2.8 3.2 3.2 2.2 3.0 6.1 4.8 14 12 10 8 6 4 2 0 33 Ireland (1) Korea United States Australia (2) Hungary (1) Greece Norway (1) Canada Finland France Iceland Austria (1) Netherlands Denmark Czech Republic Sweden (1) Luxembourg Germany Spain Switzerland Italy Japan (1) OECD
Increase of health insurance expenditures in Estonia 1993-2005 Cumulative increase in EHIF expenditures in real terms (1993=100) 500 450 400 350 300 250 200 150 100 50 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Pharmaceuticals Sick-day benefits Health care services Total Source: Estonian Health Insurance Fund annual reports and statistics (various years), authors calculations 34
One reason for rising pharmaceutical costs is increase in volume of drug use 15 10 5 Change in Price and Volume of Pharmaceuticals, 2002 0-5 UK Spain Netherlands Germany France % Change in price of existing drug % Change in new products entering the market % Increase in volume of prescribed drugs Total Growth in Drug Expenditures (%) 35
Breakdown of the mechanisms used to finance health care by country, 2006 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% NL BE FR SI LV HU CZ DE LT SK PL EE RO BG LU EL AT US CY IS FI ES PT NO IT IE MT SE DK UK Tax SIC PHI OOP Other Note: SIC = social insurance contribution; PHI = private health insurance; OOP = out of pocket payments. SIC refers to all funds channelled through health insurance funds, which may include substantial amounts of tax revenue Source: WHO, 2009
Options for revenue collection and equity consequences 0.15 Progressivity of health care financing components (Kakwani indexes, weighted with the share in health care financingl) Regressive <--- ---> Progressive 0.10 0.05 0.00-0.05-0.10 0.062 0.034 0.045 0.036 0.025 0.021 0.014 0.002 2000 2001 2002 2003 2004 2005 2006 2007 Social tax Total Income tax VAT OOP -0.15 Source: Vork, 2009 (forthcoming) Source: Microsimulation model ALAN (3 March 2009), EHBS 2000-2007; ow n calculations 37
Closing remarks in light of the financial crisis The real challenge is balancing the budget in a way that cause less than proportional decrease in the attainment of policy objectives, especially: Financial protection Health gain It is always more difficult to withdraw benefits that have already been provided therefore preventing unrealistic expectations pays off on the long run Act before it gets worse! Be proactive and prevent emergency interventions, which tend to produce more damage (apparently Estonia does not need this advice)! 38