Financial Protection and Equity in Financing

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

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

Outline of the course- Week 1 Topic Date Lecturer Introduction and Outline of the course 20.11.2017 15-17 Uhr Introduction and frameworks 21.11.2017 09-12 Uhr Wilm Quentin and Daniel Opoku Reinhard Busse Financing 1: Raising Resources 13.30-17 Uhr Wilm Quentin Seminar on health system relevant databases and information for term paper 22.11.2017 10-12 Uhr (H8173/74) Anne Spranger Financing II: Pooling and re-allocation 13.30-17 Uhr Reinhard Busse Financing 3: Purchasing and payment systems Leadership and Governance + Care Delivery 23.11.2017 09-12 Uhr Medical products 24.11.2017 9-10.30 Uhr Wilm Quentin 13.30-17 Uhr Reinhard Busse Reinhard Busse Introduction to group exercise 10.30-12 Uhr Anne Spranger Workforce 13.30-17 Uhr Claudia Maier Financial Protection and Equity in Financing 3

Outline of the course - Week 2 Topic Date Lecturer Preliminary Summary of building blocks 27.11.2017 09-10.30 Uhr Presentation by GIZ on health system related German development cooperation Reinhard Busse 10.30-12 Uhr Ursula Bürger, Fachplanerin Kompetenz-Center Gesundheit und Soziale Sicherung, GIZ Access and Coverage 13.30-17 Uhr Reinhard Busse Quality and Safety 28.11.2017 09-12 Uhr Reinhard Busse Financial and social risk protection 13.30-17 Uhr Wilm Quentin Improved Health 29.11.2017 13.30-17 Uhr Efficiency and Responsiveness 30.11.2017 09-12 Uhr Summary of Health System Performance Assessment Group Presentations and Wrap-up 01.12.2017 09-12 Uhr Wilm Quentin Reinhard Busse 13.30-17 Uhr Reinhard Busse Reinhard Busse or Wilm Quentin Financial Protection and Equity in Financing 4

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

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 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

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

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

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

Costs to patient Main forms of (formal) cost-sharing 1.000 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 1.000 Financial Protection and Equity in Financing 11

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 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

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

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

Cost-sharing reduces use: probability (%) of health care use by level of cost-sharing & income group Source: Manning et al 1987 (RAND study) 100 90 80 70 60 50 0% 25% 50% 95% 1 2 3 4 Level of cost sharing Top third Middle third Lower third Financial Protection and Equity in Financing 16

Cost-sharing disproportionately affects poorer people %* 90 80 70 60 50 40 30 20 10 0 56 59 Low-income 85 71 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

Cost-sharing: a blunt tool with very limited selective effect Source: Siu et al. (1986) New Engl J Med, RAND study 30 25 20 15 10 5 0 % 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

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

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

Effects of user-charges on health service use Source: Collins et al. 1996 21 Financial Protection and Equity in Financing

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

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

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 40 37 41 30 20 10 0 4 6 10 13 13 15 16 18 21 22 2 3 7 7 9 11 14 17 24 25 * 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

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

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 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

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

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): e1001701. https://doi.org/10.1371/journal.pmed.1001701 http://journals.plos.org/plosmedicine/article?id=10.1371/journal.pmed.1001701 Financial Protection and Equity in Financing 29

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): e1001701. https://doi.org/10.1371/journal.pmed.1001701 http://journals.plos.org/plosmedicine/article?id=10.1371/journal.pmed.1001701 Financial Protection and Equity in Financing 30

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): e1001701. https://doi.org/10.1371/journal.pmed.1001701 http://journals.plos.org/plosmedicine/article?id=10.1371/journal.pmed.1001701 Financial Protection and Equity in Financing 31

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

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

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

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

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

Third-party Payer Taxes 38% Social Health Insurance contributions 1% Voluntary insurance 1% 39% public Population Out-of-pocket Low-income countries 2012 47% Providers 83 $PPP = 5.1% of GDP Financial Protection and Equity in Financing 37

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

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

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

Third-party Payer Taxes 31% Social Health Insurance contributions 5% Voluntary insurance 2% 36% public Population Out-of-pocket Lower middle income 2012 55% Providers 235 $PPP = 4.1% of GDP Financial Protection and Equity in Financing 41

Third-party Payer Taxes 29% Social Health Insurance contributions 27% Voluntary insurance 7% 56% public Population Out-of-pocket Upper middle income 2012 32% Providers 766 $PPP = 6.0% of GDP Financial Protection and Equity in Financing 42

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

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 44 2017

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

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

Catastrophic expenditures... increase with increasing out-of-pocket expenditures Source: Xu et al. 2007 Financial Protection and Equity in Financing 47

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

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. Source: 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. Financial Protection and Equity in Financing 50

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

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 380.9837 (2012): 126-133. Financial Protection and Equity in Financing 52

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

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

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