Financing II: Pooling and (Re-)Allocation

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MPH FFPH FG Management im Gesundheitswesen, Technische Universität Berlin (WHO

1 Financing II: Pooling and (Re-)Allocation Managing and Researching Health Care Systems Reinhard Busse, Prof. Dr. med. MPH FFPH FG Management im Gesundheitswesen, Technische Universität Berlin (WHO Collaborating Centre for Health Systems Research and Management) & European Observatory on Health Systems and Policies Pooling and (Re-)Allocation 1

2 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 I: 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 III: Purchasing and payment systems Leadership and Governance + Care Delivery Uhr Workforce Uhr Wilm Quentin Uhr Reinhard Busse Claudia Maier Introduction to group exercise Uhr Anne Spranger Medical products Uhr Reinhard Busse Pooling and (Re-)Allocation 2

3 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 Pooling and (Re-)Allocation 3

4 WHO building blocks 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 Pooling and (Re-)Allocation 4

5 Pooling and (re-)allocation is important yesterday This is what we talk about today! Resource pooling & allocation Collector of resources Fair financing: Contributions according to ability to pay, not health status Steward/ Regulator Particularly important in case of competing purchasers avoid risk-selection Third-party Payer tomorrow Purchasing/ payment according to system priorities, need and quality Population Access and provision Providers Pooling and (Re-)Allocation 5

6 Expenditure is highly skewed I Germany (2001) 100% 90% 80% 70% 60% 50% 10% 20% ,2 40% 30% 20% 10% 0% 15,6 8,8 50 5,6 6,9 4 2,5 3,4 % of population % of expenditure 69% 83% Pooling and (Re-)Allocation 6

7 Expenditure is highly skewed II Ontario, Canada (2008) 10% Population Share of Health Spending 79% Source: BMC Health Services Research Pooling and (Re-)Allocation 7

8 Expenditure is highly skewed III Denmark (2012) Population Share of Health Spending 10% 30% 5% 5% 20% 20% 50% 59% 73% 92% 97% 73% 92% Source: Institute for Fiscal Studies Pooling and (Re-)Allocation 8

9 Expenditure is highly skewed IV USA (2014) Population Share of Health Spending 10% 1% 5% 10% 22% 50% 50% 65% 65% 97% Source: Agency for Healthcare Research and Quality analysis of 2014 Medical Expenditure Panel Survey. Pooling and (Re-)Allocation 9

10 Problems of limited pooling 1. Risk selection and adverse selection 2. Vertical inequities (rich poor): insufficient funding for health care of the poor 3. Horizontal inequities: differences across regions/ health insurance funds Pooling and (Re-)Allocation 10

11 Adverse selection (problem with non-mandatory insurance) Stage 1 Stage 2 Stage 3 Sick A bit sick Healthy Pooling and (Re-)Allocation 11

12 Fragmented system Government +CBHI Sickness funds Private insurance Population Providers: often separate for different segments Pooling and (Re-)Allocation 12

13 VHI SHI Not covered Coverage by access to tax-financed provision or insurance coverage Pooling and (Re-)Allocation 13

14 need to extend coverage to missing middle by (1) extending tax-financed coverage or Pooling and (Re-)Allocation 14

15 need to extend coverage to missing middle by (1) extending tax-financed coverage or Pooling and (Re-)Allocation 15

16 (2) extending the SHI system Pooling and (Re-)Allocation 16

17 (2) extending the SHI system Pooling and (Re-)Allocation 17

18 Looking at a few examples Thailand without a missing middle (but rich partly excluded) Vietnam as an example of missing middle (early) Ghana as an example of an immature pro-rich system Pooling and (Re-)Allocation 18

19 Questions on SHI organization Single or multiple funds? Competitive or non-competitive funds? Assigned membership or choice of funds? If assigned: On what basis, e.g. employment status, occupation, community/ region? Mandatory or voluntary membership? Pooling and (Re-)Allocation 19

20 Questions on SHI funding Who collects social health insurance contributions? Who is responsible for setting contribution rates? Are contribution rates uniform or do they vary between groups? What level are the contribution rates average, range, differentiated by funds, differentiated by type of subscriber e.g. self employed, farmers, elderly? Pooling and (Re-)Allocation 20

21 Questions on SHI funding cont d Is there an income ceiling on contributions (upper and lower ceilings)? What proportion does the employer and employee contribute? How progressive are social health insurance contributions? Are these payroll-related? On gross/ net earned income or all income? Who contributes on behalf of the non working population? Pooling and (Re-)Allocation 21

22 Questions on SHI funding cont d Are there special rates for certain categories such as the elderly, self-employed, farmers, public employees, unemployed? How are contribution rates calculated (e.g. risk related, income related, community rating, etc.)? What is the role of the government in this process? Is there any additional contribution (e.g. flat rate per capita premium or additional taxes which are allocated to social health insurance)? Pooling and (Re-)Allocation 22

23 Switzerland: no inter-regional solidarity (inter-insurance solidarity limited to each canton) as shown by monthly premia + 35% 5200/ year - 25% 2900/ year Pooling and (Re-)Allocation 23

24 What is the idea behind the allocation formula? Purchasers (regions, sickness funds ) should receive the necessary amount of money to purchase the necessary (= based on health needs) services at sufficient quality, i.e. on risk in insurance terms. Risk is related NEITHER to the amount of money collected in a particular region (left side of triangle) NOR to factors controlled by purchasers such as mix between primary and hospital care, number of hospital beds etc., i.e. utilization and costs not based on health needs (right side of triangle). Of course, this leaves enough room for discussion and dispute! Pooling and (Re-)Allocation 24

25 Issues for discussion: Would you allocate to regions with more elderly more ill persons lower life expectancy more persons in urban areas more hospital beds and physicians more money? Pooling and (Re-)Allocation 25

26 Some examples to explore justified factors Region A Region B age age 0-17 yrs 10% 15% yrs 60% 65% 65+ yrs 30% 20% 100% 100% Pooling and (Re-)Allocation 26

27 Some examples to explore justified factors Region A Region B age age 0-17 yrs 10% 15% yrs 60% 65% 65+ yrs 30% 20% 100% 100% Pooling and (Re-)Allocation 27

28 Some examples to explore justified factors Region A Region B age diabetes age diabetes 0-17 yrs 10% 0.7% 15% 1.2% yrs 60% 4.2% 65% 5.2% 65+ yrs 30% 2.1% 20% 1.6% 100% 7.0% 100% 8.0% Pooling and (Re-)Allocation 28

29 Some examples to explore justified factors Region A Region B age diabetes age diabetes 0-17 yrs 10% 0.7% 15% 1.2% yrs 60% 4.2% 65% 5.2% 65+ yrs 30% 2.1% 20% 1.6% 100% 7.0% 100% 8.0% Pooling and (Re-)Allocation 29

30 Some examples to explore justified factors Region A Region B age diabetes Good Hba1c age diabetes Good Hba1c 0-17 yrs 10% 0.7% 0.6% 15% 1.2% 0.9% yrs 60% 4.2% 3.8% 65% 5.2% 3.9% 65+ yrs 30% 2.1% 1.9% 20% 1.6% 1.2% 100% 7.0% 6.3% (90%) 100% 8.0% 6.0% (75%) Pooling and (Re-)Allocation 30

31 Some examples to explore justified factors Region A Region B age diabetes Good Hba1c age diabetes Good Hba1c 0-17 yrs 10% 0.7% 0.6% 15% 1.2% 0.9% yrs 60% 4.2% 3.8% 65% 5.2% 3.9% 65+ yrs 30% 2.1% 1.9% 20% 1.6% 1.2% Physicians / % 7.0% 6.3% (90%) 100% 8.0% 6.0% (75%) Pooling and (Re-)Allocation 31

32 Some examples to explore justified factors Region A Region B age diabetes Good Hba1c age diabetes Good Hba1c 0-17 yrs 10% 0.7% 0.6% 15% 1.2% 0.9% yrs 60% 4.2% 3.8% 65% 5.2% 3.9% 65+ yrs 30% 2.1% 1.9% 20% 1.6% 1.2% Physicians /1000 Poverty rate 100% 7.0% 6.3% (90%) 100% 8.0% 6.0% (75%) % 3% Pooling and (Re-)Allocation 32

33 Some examples to explore justified factors Region A age injured by road accidents Region B age 0-17 yrs 10% 0.7% 15% 1.2% yrs 60% 4.2% 65% 5.2% 65+ yrs 30% 2.1% 20% 1.6% 100% 7.0% 100% 8.0% injured by road accidents Pooling and (Re-)Allocation 33

34 Some examples to explore justified factors Region A age injured by road accidents Region B age 0-17 yrs 10% 0.7% 15% 1.2% yrs 60% 4.2% 65% 5.2% 65+ yrs 30% 2.1% 20% 1.6% 100% 7.0% 100% 8.0% injured by road accidents Pop. density ambulance travel times 100/ km 2 500/ km 2 Pooling and (Re-)Allocation 34

35 other factors justified cost differences need More systematically age + individual-level factors (esp. morbidity) + / x area/ population factors x justified cost differences at equal utilization (e.g. wage differences) + / x e.g. for equity concerns, efficiency reasons (especially in rural areas) Pooling and (Re-)Allocation 35

36 need age + individual-level factors (esp. morbidity) + / x area/ population factors Age is the main factor in most countries (and be calculated without individual data) but should be considered as secondary, i.e. capturing need differences which are not explained by more specific individual factors! Pooling and (Re-)Allocation 36

37 need age + individual-level factors (esp. morbidity) + / x area/ population factors This should be the starting point to explain need differences: several approaches exist from simple ones such as hospitalised in previous year via pharmaceutical cost groups to using coded diseases (morbidity) directly; the latter requires not only good data linking disease to costs but also a classification model Pooling and (Re-)Allocation 37

38 need age + individual-level factors (esp. morbidity) + / x area/ population factors Countries with competing insurers (e.g. Netherlands and Germany) have put most emphasis in these developments but tax-financed systems with non-competing purchasers are following Pooling and (Re-)Allocation 38

39 The risk-based allocation formula in Germany (examples) Theoretical = each person counts the same Disease surcharges are based on regression calculation (theoretical) basic allocation Pooling and (Re-)Allocation 39

40 Sweden: individual factors but not based on morbidity (diagnoses) directly Gender (x2) Age group (x13) Groups: 0, 1-4, 5-9, 10-14, 15-19, 20-24, 25-29, 30-39, 40-49, 50-59, 60-69, and 75-. Marital status (x4): children; single (18+); married; previously married Employment Status (x4) Employed with children under 16 years of age; Not employed with control task; Not employed without control task Income (x3): Non-income earners and children (under 16 years); Earners up to median income; Over median income. Accommodation type (x2): Small houses and agricultural property (all with type code <300); Others (all with type code> 300, generally multi-family houses). Pooling and (Re-)Allocation 40

41 Netherlands: individual factors a mixed approach Pooling and (Re-)Allocation 41

42 need age + other individual factors (esp. morbidity) + / x area/ population factors Besides age, these were the traditional factors used in tax-funded systems with non-competing purchasers; meanwhile getting less important Pooling and (Re-)Allocation 42

43 England: results 2015, small area variables example, age Needs variables Proportion aged people never worked Proportion Single (never married) Proportion Divorced Rented from private landlord or letting agency Proportion (unstandardised) with not good health Average with (long term) medical condition for those with at least one QOF Kidney Disease Total Exceptions QOF Epilepsy Prevalence QOF Mental Health Prevalence Health Deprivation and Disability Score Supply variable Median waiting times (weeks) of the 95th percentile for Neurosurgery Patients Pooling and (Re-)Allocation 43

44 other factors justified cost differences justified cost differences at equal utilization (e.g. wage differences) + / x e.g. for equity concerns, efficiency reasons (especially in rural areas) Pooling and (Re-)Allocation 44

45 England: modelling justified cost variations Market forces factor Wage variation in comparable services (90% of national average in Cornwall to 130% of national average in central London) Estates cost variations (land and property) Adjustment for the higher costs of running unavoidably small hospitals with 24 hour accident departments in remote areas Required when travel to hospital would otherwise be greater than 1 hour Used a model of expected hospital costs relative to a hospital serving 250,000 people Affected 8 hospitals with additional expected costs of 31million Pooling and (Re-)Allocation 45

46 Sweden: additions for rural areas Rural conditions: seeks to capture additional costs for hospital care, primary care, ambulance and sick leave due to sparse populations Calculation of additional costs is based on a notional deployment of hospitals, health centers and ambulance centers, and seeks to compensate for inability to capture economies of scale A county council receives a supplement (additional revenue) For hospital care if the population of a hospital is fewer than 100,000 inhabitants. For primary care if the basis for a healthcare center is fewer than 5,600 persons. For an ambulance allowance if the base for an ambulance station is less than 10,000 people. For overnight accommodation at health centers, provided that the distance between the health center and the nearest hospital exceeds 10 miles. Pooling and (Re-)Allocation 46

47 Conclusions Resource allocation to purchasers is a crucial element in designing a high-performing health system It is the crucial link between resource collection and payment Resource allocation should be based on risk, i.e. health needs of the population covered by purchaser While there are general rules how to design an allocation formula, there is not generally accepted one size fits all The development of a formula in Italy will depend on (1) data availability (best on individual level) and (2) political will and agreement which factors should be taken into account Pooling and (Re-)Allocation 47

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