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1 Health financing in high income countries: lessons for countries in transition 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 Third-party Payer Population

2 Collector of resources Population Collector of resources Steward/ regulator pooling & allocation Mobilizing resources/ funding Population Steward/ regulator Regulation Third-party payer Third-party payer Purchasing/ contracting/ financing providers Coverage: Who? What? How much? Functions Access to and provision of services

3 pooling & allocation Collector of Third-party payer resources Mobilizing resources/ funding Population Coverage Who? For what? Steward/ regulator Regulation System typology Social security schemes - % total expen nditure on health F L NL D ROK J¹ Financing gproviders: reimbursement/ purchasing/ contracting Access to and provision of services Revenues derived from taxes vs. revenues derived from social security contributions as % of total health expenditure (2002) CH B Mainly SHI A GR private SGP² Mainly private USA CDN IRL S P I NZ N 0 AUS UK DK General government, excluding social security - % total expenditure on health FIN IS¹ Mainly Tax E

4 Third-party Payer prepaid Population Taxes Social Health Insurance contributions Voluntary insurance Out-of-pocket Third-party Payer Taxes 20% Social Health Insurance contributions 1% Voluntary insurance <1% 20% public Population Out-of-pocket 78% Developing world (e.g. India)

5 Third-party Payer Population Western Europe Taxes Social Health Insurance contributions Voluntary insurance Out-of-pocket 65-85% public <10% 10-20% Correlation between private expenditure (as % of total health care expenditure) and the percentage of households with catastrophic health expenditure ) total % of households with catastrophic (>40% of income) he ealth expenditure 4,5 40 4,0 3,5 3,0 2,5 2,0 P 1,5 1,0 0,5 S IS N DK UK D FIN F E B CDN 0, Private expenditure on health as % of total expenditure on health (2002) CH ROK GR USA SHI TAX MIXED

6 Conceptual Framework for analysing health financing systems Decisions on depth, breadth and height of coverage Collecting Entitlement Individuals + employers Funding flows allocation (1) Taxes, contributions and premia (prepaid resources) Benefit flows Pooling Direct payments (out-of-pocket) Health care allocation (2) Purchasing allocation (3) (remuneration of providers) The three dimensions of coverage decisions 3. HOW MUCH? Cost coverage ( Height ) 1. WHO? Population Coverage ( Breadth ) 2. WHAT? Service Coverage (benefit package; Depth )

7 P I & IRL GR NHS- principles: Universal, comprehensive, free at the point of service Korea CH F NL Coverage of population in countries without universal coverage in 1975 France Germany Greece Ireland Italy Korea Luxembourg Netherlands Portugal Spain Switzerland United States Belgium Austria

8 Covered benefits (benefit package) implicit expansion (new technologies) explicit expansion (long-term care in Austria, Germany, Japan ; dental care in Spanish regions ; ambulatory services in Singapore) (attempts to) limitations due to exclusion of service categories (dental care, cosmetic surgery ) and, more importantly, introduction of Health Technology Assessment 58,7 decreasing Out-of-pocket: a mixed picture 41,9 increasing ,1 14,1 35,7 31,5 16,5 13,2 11, ,1 10,4 7, ,8 10, ,5 15,7 14,9 14,4 14,6 14,5 15,3 17,3 14,9 17,5 13,4 16,5 15, ,6 % of TEH in 1990 % of TEH in 2002 Difference between 1990 and Korea United States ,8-6 -4,2 Switzerland Ireland b) -3,3 8,4-1,4-0,7-0,6 France Germany Netherlands a) -0,2 0,4 0,5 0,9 1,2 2 Denmark United Kingdom d) Canada Norway New Zealand Japan e) 2,6 3,1 Austria e) Iceland Finland Australia f) 3,5 21 4,4 18,7 Spain c) 23,7 5 15,4 20,7 5, ,5 11,9 Italy Sweden g) Luxembourg b) 64 6,

Reduced rates or exemptions commonly relate to one or more of the following: clinical condition diabetics in Sweden, pregnant women in the United Kingdom and people with specified chronic illnesses

9 Reduced rates or exemptions commonly relate to one or more of the following: clinical condition diabetics in Sweden, pregnant women in the United Kingdom and people with specified chronic illnesses in Ireland, Finland, Spain and the United Kingdom (Thomson et al. 2003). level of income all those with low incomes in Austria, Belgium, Germany, Ireland and the United Kingdom and older people with low income in Greece age older people in Belgium, Ireland, Korea, Japan, Spain and the United Kingdom and children and adolescents in many countries, e.g. in Germany, Japan and the United Kingdom type of drug drugs for chronic illnesses in Portugal, drugs for life-threatening illnesses in Belgium, both types of drug in Greece and effective drugs in France Reform trends Increasing co-payments (but effects on total OOP often compensated) More new benefits than exclusions Universal coverage

10 With respect to the extent benefits are covered (benefit coverage) Not all benefits are covered at 100% by public schemes Three different forms of cost-sharing are most commonly used Form Copayment Coinsurance Deductible Collecting Entitlement Definition User pays a fixed fee (flat rate) per item or service User pays a fixed proportion of the total cost, with the insurer paying the remaining proportion User bears a fixed quantity of the costs, with any excess borne by the insurer; deductibles can apply to specific cases or a period of time Collection of resources Decisions on depth, breadth and height of coverage allocation (1) Taxes, contributions and premia (prepaid resources) Pooling Direct payments (out-of-pocket) allocation (2) Purchasing allocation (3) (remuneration of providers) Individuals + employers Health care Funding flows Benefit flows

11 Social security schemes - % total expen nditure on health re on health al security schemes - % total expenditur F L NL D ROK Revenues derived from taxes vs. revenues derived from social security contributions as % of total health expenditure (2002) J¹ CH B Mainly SHI SGP² A GR Mainly private USA private CDN IRL S P I NZ N 0 AUS UK DK L 2002 NL 2002 ROK 2002 ROK 1992 General government, excluding social security - % total expenditure on health L1994 FIN IS¹ Mainly Tax Countries with changes of more than 5%-points for revenue from tax payments vs. from social security contributions as % of total health expenditure (1975, 1992 and 2002 or nearest) NL 1990 NL 1980 CH 2002 CH 1985 E 1986 CH 1992 IS 1975 Socia ROK 1982 SGP 2000² SGP 1992¹ E 2002 CDN 1992 CDN 1975 N 1992 N 1975 SGP 1975² SGP 1965² 0 CDN 2002 N E 1992 IS 1992 E IS 2001 FIN 2002 FIN 1975 FIN 1992 General government, excluding social security - % total expenditure on health

12 The case of Spain: shift from SHI- to tax-financed system Spain also mainly relied on social health insurance contributions tib ti In the mid-1970s, 2/3 SHI contributions and 1/3 taxes of total health care expenditure In 1986 with the introduction of a National Health Service a major shift towards tax funding was initiated By 1989, the previous pattern was reversed for the first time, 70% taxes and 30% SHI contributions -> Main reason for change: perceived higher progressivity of tax-financing mechanism (although SHI-system could have achieved the same progressivity) SHI countries: role of taxes increasing, but target varies Contribution collector B (>30%), L (37%), NL, CH -95 E1 C E2 Individuals & employers Social health insurance system Pooling organization Sickness funds (Purchasing org.) A, D, F Sf1 Sf2 ( poor funds, Sf3 e.g. for farmers) T Si CH 96-, NL 06- Tax collector P Public health providers, R hospital services (A, Sp1 50% in CH), hospital Sp2 investments (D) Sp3 Sp4

13 Decentralization of responsibilities for resource collection in tax-financed systems N ATIONAL MENT LAW OF N PARLIA NATIONAL BUDGET Budget of National Health System Regional Health Service Examples: Spain, Italy, Sweden REGIONAL BUDGET National taxes Regional taxes No clear trend for private/ voluntary health insurance: Change of PHI as % of THE and PHE between 1990 and LAW OF REGIONAL PARLIAMENT Australia a) Austria United Kingdom c) Finlandnd Denmark Canada Italy Spain France Portugal b) Germany United States Netherlands New Zealand Switzerland % change, PHI share of private expenditure on health % cahge, PHI share of total expenditure on health

14 Pooling of resources Collecting Entitlement Individuals + employers Funding flows Decisions on depth, breadth and height of coverage allocation (1) Taxes, contributions and premia (prepaid resources) Benefit flows Pooling Direct payments (out-of-pocket) Health care allocation (2) Purchasing allocation (3) (remuneration of providers) Allocation of resources from collecting to pooling (tax financed systems) Pooling and purchasing often the same institution, but sometimes pooling organization = ministry of health e.g. in England, Ireland, Italy and New Zealand Allocation between these two bodies is in most cases rather a matter of political agenda setting than of objectively defined allocation But: New Zealand has implemented an allocation formula which takes into account the most important pressures on health expenditure projected population changes (in size and age structure with yearly automatic adjustment) predicted price increases (estimated each year) the net effect of technological changes and efficiency gains (estimated each year) Trend towards decentralised pooling e.g. Sweden

Allocation of resources from collecting to pooling (SHI systems) Trend towards centralisation of pooling (Germany, the Netherlands, Belgium and Switzerland) mostly independent on the federal level as

funds have double-function of collecting and pooling, thus making reallocation between different unnecessary Belgium, France and the Netherlands have two separate central bodies, one responsible for

15 Allocation of resources from collecting to pooling (SHI systems) Trend towards centralisation of pooling (Germany, the Netherlands, Belgium and Switzerland) mostly independent on the federal level as the Federal Insurance Office in Germany or the Health Care Insurance Board in the Netherlands Unique case: Switzerland, pooling only on regional (Kanton) level In Austria, Korea, and Japan sickness funds have double-function of collecting and pooling, thus making reallocation between different unnecessary Belgium, France and the Netherlands have two separate central bodies, one responsible for collecting and one responsible for pooling Luxemburg has a central pooling organization (Association of Sickness Funds) which is also acting as collecting organization Reallocation only necessary in Germany, the Netherlands and Switzerlands (funds collect, independent association is pooling) Incomplete pooling the case of Switzerland: Premia in 2005 by canton (in CHF/ month)

16 Allocation of resources from pooling to purchasing Allocation mechanisms Retrospective allocation (e.g. in Belgium, Luxembourg and the Netherlands before reforms in 1990s) Prospective allocation historical precedent (e.g. in Portugal 84.5% of resources allocated to Regional Health Administrations are based on historical precedent/ subsidies to in Farmers funds in Germany and Austria) political negotiations (e.g. Greece uses a combination of historical precedent and political negotiations for the allocation to the regions) independent criteria (risk adjusters) of health care needs (capitation: price paid by the pooling for each individual covered by purchasing with the necessary health services) Allocation of resources from pooling to purchasing Capitation methods Matrix approach based on individual-level id l l data E.g. individual utilization of drugs enables higher predictive value for the actual health expenditure Problem: data is often not available Index approach based on aggregate data E.g. urbanisation of regions Most commonly used

17 Risk adjusters in the capitation formulas for resource allocation (social health insurance systems) Country Year of Risk-adjusters implementation Austria None Belgium Age, sex, social insurance status, employment status, mortality, urbanization, income -Age, sex, social insurance status, employment status, mortality urbanization, income, diagnostic and pharmaceutical cost groups France None Germany 1994/ Age, sex, disability pension status -Age, sex, disability pension status, participation in disease management program Japan None Korea None Luxembourg None Netherlands Age, sex -Age, sex, region, disability status -Age, sex, social security/ employment status, region of residence -Age, sex, social security/ employment status, region of residence, diagnostic and pharmaceutical cost groups Switzerland (within canton) Age, sex Sources: adapted from Busse et al. (2004) and updated with data from Risk Adjustment Network (HAN) Purchasing (and remuneration of providers) Collecting Entitlement Decisions on depth, breadth and height of coverage allocation (1) Taxes, contributions and premia (prepaid resources) Pooling Direct payments (out-of-pocket) allocation (2) Purchasing allocation (3) (remuneration of providers) Individuals + employers Health care Funding flows Benefit flows

18 Different market structures for purchasing Single or multiple purchasers for main benefit package? Market structure Countries Single Multiple Cover geographically distinct population? No Compete for clients? Source: adapted from Kutzin (2001) Yes No Yes National purchaser Regional purchaser Multiple noncompeting insurers Multiple competing insurers Number of sickness funds from GR (NHS), IS, ROK, SGP AUS, CDN, DK, E, FIN, IRL, I, N, NZ, P, S, UK, USA (Medicaid) A, F, GR (sickn. funds), L, J B, D, NL, CH, USA (Medicare) Change Austria % Belgium % France % Germany % Japan % Korea 409 n.a. n.a. n.a. n.a. 384 n.a % Luxembourg % Netherlands % Switzerland %

19 The role of the purchaser 1970s and even the 1980s role of the purchaser was traditionally limited to a passive financial intermediary 1980s several countries tried to integrate market mechanisms in order to increase quality and efficiency of the provided services During the 1990s purchasing increasingly gained more autonomy in management and planning Active purchasing can allow contracting as well as care management of purchasing (not necessarily managed care in a narrow sense) e.g. purchasing disease management programs Tentative lessons for low- and middle-income countries 1. Facilitate steady economic growth 2. Initiate pilots for health insurance schemes 3. Foster ability to administrate 4. Ensure political commitment to expand population coverage 5. Combine expansion of population coverage with risk-pooling 6. Ensure evaluation of covered/provided goods and services at each stage

20 Content based on Study commissioned by the World Bank: Busse, R., Schreyögg, J. and Gericke, C. (2006), Challenges of health financing in high income countries. Short version as chapter 9 in: Health Financing Revisited, Washington: The World Bank. Downloadable at:

Social Health Insurance countries in western Europe an Observatory study

Social Health Insurance countries in western Europe an Observatory study Reinhard Busse, Prof. Dr. med. MPH Professor of Health Care Management, Technische Universität Berlin Associate Research Director,