Financial Protection and Equity in Financing

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1 Financial Protection and Equity in Financing Managing and Researching Healh Care Systems Wilm Quentin, Dr. med. MSc HPPF FG Management im Gesundheitswesen, Technische Universität Berlin (WHO Collaborating Centre for Health Systems Research and Management) & European Observatory on Health Systems and Policies Financial Protection and Equity in Financing 1

2 WHObuildingblocks 27 Nov 21 Nov 30 Nov/1 Dec 23 Nov 24 Nov 22 Nov (seminar) 24 Nov 21 to 23 Nov Week 8 27 Nov 28 Nov 29 Nov 30 Nov 28 Nov 30 Nov 23 Nov WHO 2007 Financial Protection and Equity in Financing 2

3 Outline of the course- Week 1 Topic Date Lecturer Introduction and Outline of the course Uhr Introduction and frameworks Uhr Wilm Quentin and Daniel Opoku Reinhard Busse Financing 1: Raising Resources Uhr Wilm Quentin Seminar on health system relevant databases and information for term paper Uhr (H8173/74) Anne Spranger Financing II: Pooling and re-allocation Uhr Reinhard Busse Financing 3: Purchasing and payment systems Leadership and Governance + Care Delivery Uhr Medical products Uhr Wilm Quentin Uhr Reinhard Busse Reinhard Busse Introduction to group exercise Uhr Anne Spranger Workforce Uhr Claudia Maier Financial Protection and Equity in Financing 3

4 Outline of the course - Week 2 Topic Date Lecturer Preliminary Summary of building blocks Uhr Presentation by GIZ on health system related German development cooperation Reinhard Busse Uhr Ursula Bürger, Fachplanerin Kompetenz-Center Gesundheit und Soziale Sicherung, GIZ Access and Coverage Uhr Reinhard Busse Quality and Safety Uhr Reinhard Busse Financial and social risk protection Uhr Wilm Quentin Improved Health Uhr Efficiency and Responsiveness Uhr Summary of Health System Performance Assessment Group Presentations and Wrap-up Uhr Wilm Quentin Reinhard Busse Uhr Reinhard Busse Reinhard Busse or Wilm Quentin Financial Protection and Equity in Financing 4

5 Outline for this afternoon 13:30-15:30: Presentation and discussion (120 min) 15:30-15:45: break (15 min) 15:45-16:15: group work: analysing health system financing (30 min) 16:15-16:50: Presentation of group work and discussion 16:50-17:00: Wrap-up (10 min) Financial Protection and Equity in Financing 5

6 Why is health care financing important? 2 goals Financial protection Does use of health services lead to financial hardship? Equity in financing Who bears the financial burden of paying for health services? Financial Protection and Equity in Financing 6

Financial protection refers to how far people are protected from the financial consequences of illness is achieved when payments made to obtain health services do not expose individuals to financial

7 Financial protection refers to how far people are protected from the financial consequences of illness is achieved when payments made to obtain health services do not expose individuals to financial hardship and do not threaten living standards Fair financing in health systems means that the risks each household faces due to the costs of the health system are distributed according to ability to pay rather than to the risk of illness: a fairly financed system ensures financial protection for everyone. (World Health Report 2000) Financial Protection and Equity in Financing 7

8 Important to distinguish concepts (and terms) Public, usually pooled [BLUE] Private [WHITE] Private/ voluntary health insurance (partly pooled) Out-of-pocket Direct expenditure [BEHIND BLUE BOX; b] (Formal) Cost sharing [ABOVE BLUE BOX; c] Fixed co-payments/ user fees Co-insurance (a percentage) Deductible Cap (per service/ year) Informal payments Financial Protection and Equity in Financing 8

9 Out-of-pocket payment as % of total household spending in EU (2014 or nearest year) 6 5,8 5 4,4 4,4 4 4,0 3,9 3,6 3,5 3,5 3,4 3 3,2 3,1 3,1 2,9 2,9 2,7 2,6 2,6 2,4 2,4 2,3 2,3 2,0 1,9 1,9 1,8 2 1,7 1,5 1,4 1,2 1 0 Source: OECD Health Statistics 2016; Eurostat Statistics Database 9 Financial Protection and Equity in Financing

proportion of the benefit cost is covered? (a) Breadth: who is covered?

10 Cost-sharing = (c) Depth of coverage Extend to uninsured Reduce costsharing Public expenditure on health Include other benefits (c) Depth: what proportion of the benefit cost is covered? (a) Breadth: who is covered? (b) Scope: which benefits are covered? Financial Protection and Equity in Financing 10

11 Costs to patient Main forms of (formal) cost-sharing No insurance Deductible (e.g. 100% up to 300, 0% afterwards) Co-insurance (e.g. 20%) Fixed co-payment/ user fee (e.g. 100) 0 Costs of services Financial Protection and Equity in Financing 11

12 A history of user charges: background Economic crises in many developing countries in the 1980s Washington consensus Reduce public expenditures Introduce market based reforms Strongly promoted by World Bank and IMF, demanding structural adjustment programs 12 Financial Protection and Equity in Financing

World Bank arguments Health care quality in public sector is bad User charges can improve resource availability at providers (availabiltiy of medications, materials) Can improve quality Will increase

13 World Bank arguments Health care quality in public sector is bad User charges can improve resource availability at providers (availabiltiy of medications, materials) Can improve quality Will increase public health service utilisation User charges can reduce costs and improve efficiency of resource use too much focus on hospital care will free resources for basic services and for the poor who should be exempted 13 Financial Protection and Equity in Financing

14 More general: Arguments for cost-sharing reduce excess (inappropriate) demand caused by full insurance (moral hazard) contains costs/ expenditure raises revenue directs people to more cost-effective use Financial Protection and Equity in Financing 14

15 What do we know about cost-sharing? Argument for cost-sharing Reduce inappropriate use? Contain total / public spending? Raise revenue? Steering? Everyone else does it Evidence Yes, but reduce appropriate use too: no selective effect No evidence of long-term cost control: elasticity, other costs, intensity, prices, costs driven by supply Yes, but not much Maybe, in specific contexts: involves removing user charges Do they? Does that make it the right thing to do? Financial Protection and Equity in Financing 15

16 Cost-sharing reduces use: probability (%) of health care use by level of cost-sharing & income group Source: Manning et al 1987 (RAND study) % 25% 50% 95% Level of cost sharing Top third Middle third Lower third Financial Protection and Equity in Financing 16

17 Cost-sharing disproportionately affects poorer people %* Low-income Higher-income Children Adults Probability (%) of receiving highly effective care compared to those with free care (care that is appropriate and necessary for acute conditions) Source: Lohr et al 1986 (RAND study) 17 Financial Protection and Equity in Financing

18 Cost-sharing: a blunt tool with very limited selective effect Source: Siu et al. (1986) New Engl J Med, RAND study % reduction in hospital admissions per 1000 person years among those who had to pay (compared to free care) 22 Appropriate admissions 27 Inappropriate admissions Financial Protection and Equity in Financing 18

19 Raising revenue: Effects on cost-recovery? 19 Financial Protection and Equity in Financing

20 What impact on health? Studies show that cost-sharing reduces use of cost-effective and non-cost effective care disproportionately affects poor and ill people increase incidence of unwanted outcomes depending on policy design, may undermine health status Financial Protection and Equity in Financing 20

21 Effects of user-charges on health service use Source: Collins et al Financial Protection and Equity in Financing

22 Abolition of user charges in Uganda in 2001 % population that consulted following an illness episode Nabyonga Orem J et al. Health Policy Plan. 2011;26:ii41-ii51 22 Financial Protection and Equity in Financing

23 Share of persons reporting unmet needs for medical care due to being too expensive, by income quintile, 2014 Financial Protection and Equity in Financing 23

24 Size and protection mechanisms are important 60 % 50 Experienced cost-related access problem* Cap for cost-sharing Cost-sharing uncapped Spent US$1,000 or more out-ofpocket * Did not fill/skipped prescription, did not visit doctor with medical problem, and/or did not get recommended care. Source: modified from 2013 Commonwealth Fund International Health Policy Survey in Eleven Countries. 24 Financial Protection and Equity in Financing

25 What impact on costs? no evidence of long-term cost control squeezed-balloon effect consider the distribution of health costs user charges have little impact on prices, intensity, technology diffusion, excess capacity, admin. costs most health care costs are driven by supply-side factors Financial Protection and Equity in Financing 25

26 Key messages Cost sharing may undermine efficiency: patients cannot easily distinguish between cost-effective and non-cost effective care, substitution effects policy requires careful design: clarity about goals, clear signals to users, transaction costs, monitor impact on access to secure value for money: main policy focus should be on purchasing and supply Financial Protection and Equity in Financing 26

Measuring financial protection I Conventional indicators of financial protection (Wagstaff, 2009) Focus on the extent to which health payments are catastrophic and impoverishing Catastrophic

27 Measuring financial protection I Conventional indicators of financial protection (Wagstaff, 2009) Focus on the extent to which health payments are catastrophic and impoverishing Catastrophic expenditure: occurs when a household s OOP payments are so high relative to its available resources that the household foregoes the consumption of other necessary goods and services Impoverishment: occurs when OOP payments push households below or further below the poverty line Financial Protection and Equity in Financing 27

28 Measuring financial protection II Criticism (Moreno-Serra, Millett, Smith, 2011) Constructed solely on the basis of OOP medical expenditures reported in household surveys Poorer individuals often cannot afford to use health services and therefore report very low or no health spending (in case they have to forgo necessary medical treatment due to costs) Sole focus on incurred spending may provide misleading picture of financial protection True but (Saksena et al., 2014) Coverage with essential health services is measured when measuring effective coverage. Therefore, no need to incorporate impact of financial barriers on utilization into any indicator of financial risk protection. Financial Protection and Equity in Financing 28

29 Figure 3. Box plot of OOP payments/expenditure net of basic food expenditure for 53 countries. Saksena P, Hsu J, Evans DB (2014) Financial Risk Protection and Universal Health Coverage: Evidence and Measurement Challenges. PLOS Medicine 11(9): e Financial Protection and Equity in Financing 29

30 Figure 1. Impoverishment and catastrophic health expenditure headcount by country income. Saksena P, Hsu J, Evans DB (2014) Financial Risk Protection and Universal Health Coverage: Evidence and Measurement Challenges. PLOS Medicine 11(9): e Financial Protection and Equity in Financing 30

31 Figure 2. Impoverishment headcount and difference in poverty gap by country income Saksena P, Hsu J, Evans DB (2014) Financial Risk Protection and Universal Health Coverage: Evidence and Measurement Challenges. PLOS Medicine 11(9): e Financial Protection and Equity in Financing 31

32 Tools to improve financial protection Pooling of funds (share financial risks of illness across all members of pool) in preference to OOP payments Higher proportions of prepaid and public funds for health care in preference to OOP payments prepaid public Population Resource pooling & allocation Collector Third-party payer Taxes Social Health Insurance contributions Voluntary insurance Out-of-pocket Providers Financial Protection and Equity in Financing 32

33 System typology Financing II: Resource pooling & allocation Collector of Third-party Payer resources Income-dependent contributions Financing I: & sickness funds = Financing III: Purchasing/ Raising resources/ Social Health Insurance system contracting/ funding Steward/ Taxes paying & providers Regulator governments/ health authorities Regulation = tax-funded system (NHS) Population Coverage: Who? What? How much? Financial Protection and Equity in Financing Providers Access to services Risk-related premia & private insurers = Voluntary Provision of Health services Insurance system 33

34 System typology: based on main funding source and third-party payer but with other implications around the triangle Third-party Payer Financing I: Raising resources/ funding Income-dependent contributions & sickness funds = Social Health Insurance system Taxes & governments/ health authorities = tax-funded system (NHS) Risk-related premia Providers & private insurers = Voluntary Provision of Health services Insurance system Financial Protection and Equity in Financing 34

35 Finding the right funding mix private insurers sickness funds Third-party Payer health authorities prepaid public Taxes Social Health Insurance contributions Voluntary insurance Population Out-of-pocket Providers Financial Protection and Equity in Financing 35

36 World-wide 2012 (large US market!) Third-party Payer Population Taxes 23% Social Health Insurance contributions Voluntary insurance Out-of-pocket 34% 22% 15% 58% public Public money can be handled by private-law institutions; publicly regulated may therefore be a better term. Providers 1170 $PPP = 8.6% of GDP Financial Protection and Equity in Financing 36

37 Third-party Payer Taxes 38% Social Health Insurance contributions 1% Voluntary insurance 1% 39% public Population Out-of-pocket Low-income countries % Providers 83 $PPP = 5.1% of GDP Financial Protection and Equity in Financing 37

38 Third-party Payer Population Ghana 2014 Taxes 41% Social Health Insurance contributions 19%% Voluntary insurance Out-of-pocket 27% 0.8% 60% public Providers 145$PPP 4% of GDP Financial Protection and Equity in Financing 38

39 Third-party Payer Taxes 53% Social Health Insurance contributions 6% Voluntary insurance 3% 59% public Population Rwanda 2012 Out-of-pocket 38% Providers 158 $PPP 11.2 % of GDP Financial Protection and Equity in Financing 39

40 Third-party Payer Taxes 23% Social Health Insurance contributions <1% Voluntary insurance 0% 24% public Population Myanmar 2012 Out-of-pocket 71% Providers 35 $PPP 1.8 % of GDP Financial Protection and Equity in Financing 40

41 Third-party Payer Taxes 31% Social Health Insurance contributions 5% Voluntary insurance 2% 36% public Population Out-of-pocket Lower middle income % Providers 235 $PPP = 4.1% of GDP Financial Protection and Equity in Financing 41

42 Third-party Payer Taxes 29% Social Health Insurance contributions 27% Voluntary insurance 7% 56% public Population Out-of-pocket Upper middle income % Providers 766 $PPP = 6.0% of GDP Financial Protection and Equity in Financing 42

43 Third-party Payer Population High income 2012 Taxes 21% Social Health Insurance contributions Voluntary insurance Out-of-pocket 40% 15% 19% 61% public Providers 4516 $PPP = 11.6% of GDP Financial Protection and Equity in Financing 43

44 OOP expenditures as fraction of total health expenditures, 2014 Lower middle income Upper middle income Low income High income Financial Protection and Equity in Financing Source: World Health Statistics

45 Richer countries spend more publicly (with the exception of the US) x 4! as much Source: World Health Statistics 2015, baseline 2012 but is more public better? Financial Protection and Equity in Financing 45

46 Out-of pocket expenditures... decrease with higher government health expenditures More public spending and better health policies Source: WHO estimates for 2012, selected countries with population > 600,000 Financial Protection and Equity in Financing 46

47 Catastrophic expenditures... increase with increasing out-of-pocket expenditures Source: Xu et al Financial Protection and Equity in Financing 47

48 Equity in financing World Health Report 2000: health care [financing] is perfectly fair if the ratio of total health contribution to total non-food spending is identical for all households, independently of their income, their health status or their use of the health system. Two concepts are important: Vertical equity: people with a greater ability to pay should pay more Horizontal equity: individuals with similar resources should contribute similarly to the health system Financial Protection and Equity in Financing 48

49 Equity in financing Progressive: individuals with greater ability contribute a larger proportion of their income than do individuals with lower ability to pay Regressive: individuals with greater ability contribute a lower proportion of their income than individuals with lower ability to pay health funding progressive income = equitable = good Direct tax possibly proportional Wage-related contribution Private insurance premium; user fee = not so good regressive = not equitable = bad Financial Protection and Equity in Financing 49

Equity in financing in Ghana Akazili J, Gyapong J, McIntyre D. Who pays for health care in Ghana? International Journal for Equity in Health. 2011;10:26. doi:10.1186/1475-9276-10-26.

50 Equity in financing in Ghana Akazili J, Gyapong J, McIntyre D. Who pays for health care in Ghana? International Journal for Equity in Health. 2011;10:26. doi: / Source: Akazili J, Gyapong J, McIntyre D. Who pays for health care in Ghana? International Journal for Equity in Health. 2011;10:26. doi: / Financial Protection and Equity in Financing 50

51 Equity in financing in Tanzania Source: Mtei G et al. Health Policy Plan. 2012;27:i23-i34 51 Financial Protection and Equity in Financing

52 Kakwani indices for financig sources in Ghana, South Africa and Tanzania Figure 1: Kakwani Indices for financing sources in Ghana, South Africa, and Tanzania. A negative index shows a regressive financing mechanism and a positive index a progressive mechanism. *Contributions by the informal sector in Ghana (although legislation requires all Ghanaians to join the national health insurance scheme, membership is eff ectively voluntary for people outside the formal sector); contributions to private health-insurance schemes in South Africa; and contributions to the Community Health Fund and related schemes in Tanzania. Mandatory insurance in Ghana includes only the contributions by formal-sector employees. General taxes refer to the combination of direct and indirect taxes Source: Mills, Anne, et al. "Equity in financing and use of health care in Ghana, South Africa, and Tanzania: implications for paths to universal coverage." The Lancet (2012): Financial Protection and Equity in Financing 52

53 Group work (30 min) 4 groups Financial Protection and Equity in Financing 53

54 Group task Imagine: A new Minister of Health wants to undertake a major reform. His/her main goal is to improve financial protection and equity of financing. Select one of your countries The student from the country represents the MoH Other students form a group of consultants Two groups analyze the degree of financial protection of the system and propose measures for improvement The other two groups analyze how equitable the financing system is and make suggestion to improve equity of financing. After break: One of the consultants presents the results (5min) Financial Protection and Equity in Financing 54

55 Conclusions Assuring financial protection and equity in financing are important goals of health systems Financial protection of health systems is usually measured in terms of catastrophic and impoverishing expenditures Equity in financing is assessed in terms of the progressivity of the funding mix. Public sources (taxes and SHI) are better at achieving financial protection and equity in financing. Financial Protection and Equity in Financing 55

Preliminary summary the triangle and the building blocks (functions)

Preliminary summary the triangle and the building blocks (functions) Managing and Researching Health Care Systems Reinhard Busse, Prof. Dr. med. MPH FFPH FG Management im Gesundheitswesen, Technische Universität