Financing Health Care

Chapter 3: Financing Health Care

3.1 Alternative strategies to increase effective resources levels:

A variety of technique and policies have been suggested in various contexts to do this, including the following:

• Appraisal: techniques such as cost-effectiveness analysis may suggest alternative approaches to particular health problems which are more efficient.
• Contracting out: buying –in of services from outside sources (such as catering or cleaning), where these are shown to be more efficient than internal provision.
• An internal market: development of internal budget systems within an organization which is constituted as a quasi-market, with difference budget or cost centers selling services to each other. The assumption behind such a strategy is that such a simulation of the market will improve efficiency.
• Information dissemination: dissemination of comparative information on the performance of different parts of the health services or of an organization, in the expectation that either peer-group pressure or management incentives will lead to changes in practice.
• Involvement of clinicians in management: clinicians are typically the individuals who, through their decisions, have most influence on how resources are spent. Increasing their involvement in budgeting and management may be important as a means of developing greater awareness of cost and greater efficiency.

3.2 Criteria for choosing a financial system:

• Viability and ease of use of the system
• Revenue-generating ability
• Effects on health-care supply
• Demand-side effects including equity
• Participation in decision-making
• Multisectoralism

3.3 Alternative approaches to financing health-care:

• Fees for service and private insurance
• Tax revenue and social insurance
• Community financing
• Loans and grants

Methods of Health Care Financing

1. Government Financing (Revenue)

2. Health Insurance:

- Social Health Insurance (SHI)

- Private Health Insurance (PHI)

3. User Fee

4. Community Financing

- Community Health Insurance (CHI)

- Micro- Health Insurance: Special form of CHI

- Community drug programme (CDP)

5. Public-Private Collaboration

6. External Development Partners (EDPs)

1. Government Financing

•General Taxation:

- General Tax Revenue may be a stable source of financing

•Earmark Tax:

- particular tax for health care

- e.g., Cigarette/Liquor Tax for Health Tax fund

2. Health Insurance

What is Health Insurance?

Health insurance is a means of financial protection against the risk of unexpected and expensive health care.

• Social Health Insurance ( SHI) was first introduced in Germany in 1883

•In Chili, SHI was introduced in 1920s

•In Asia, China, Indonesia, the Philipines, Mongolia, Malaysia, Thailand, Vietnam, Taiwan, Singapore have already introduced SHI

Health Insurance (HI)

HI is stable source of health care financing

Health Insurance serves two principal Functions – for economic welfare of nation

1. Insurance pools together the financial risks facing a large group of people – (Risk Sharing)
2. Insurance enables individuals to transfer their risks to an insurance plan
1. Social Health Insurance (SHI)
2. Social Health Insurance: for formal Sector

Two characteristics that distinguish from PHI

- Social Health Insurance is compulsory in an eligible group,

- SHI can not be voluntary

Voluntary insurance markets fail, because of adverse selection and cream skimming

SHI premiums and benefits are described in social compact (laws)-legislation

Social Health Insurance is not right to all

Benefits are usually related to contribution

Contribution rates and benefits can not be unilaterally changed

Contributions (premiums) SHI are earmarked

Government, employers and employees – tripartite based

Private Health Insurance

PHI is offered by non-profit or for-profit insurance companies

Consumers voluntarily chose insurance package

Private insurance are offered on an individual basis and group basis

3. User fees

User fees: patients pay a fee to the provider at the point of service use

The amount of user fee can be determined:

a) The amount can be the full charge

b) As co-payment: a flat amount preset for each visit

c) Coinsurance: Patients responsible to pay a percent of full charge

Cost-Recovery

Break-Even Point:

At this point, Costs = Revenue

Profit making organizations always try to keep Revenue > Cost

Public facilities in a state of

Cost > Revenue

Cost Sharing, User charges, CDP etc minimizes the difference between Cost and Revenue

If price elasticity of demand is little, User fee would be good method

If price elasticity is high, User fee could not serve very well

Low income people are likely to consume less health care

From equity ground, user fee is not preferred

Cross-subsidization: charge more who can afford and subsidies to poor and vulnerable groups

4. Community Health Financing (CHF)

Community financing is based on two Principles

- Community cooperation

- Self reliance

CHF may be encouraged and supported by the government through its polices, regulations and financial and technical support

It is thought as a cost recovery tool

11 countries Experiences on CHF
China,Vietnam,Mongolia, The Philipines, Indonesia, Laos, Cambodia, PNG,Myanmar, Thailand and Malaysia

Five categories of community level health financing mechanisms:

•Voluntary Health insurance

•Compulsory Health Insurance

•Pre-payment Health Accounts

•User fees

•Revolving Drug funds

5. Public-Private Collaboration

Health care systems are also financed by Public-Private Collaboration

One way to tap resources that have moved away from the public sector

Private beds in public hospitals

Services contracted to private providers

Contract private general practitioners/Brain drain problem

Payment Mechanism

vAllocation of resources to health sector organizations and individuals in return for some activities.

vPayment encompasses both funding and remuneration

Some payment mechanisms are:

•Fee-for-Service

- Payment is made to health care organization only after a service has been provided

- Fee-for-service encourage technical efficiency ( Cost minimization)

- Incentive to increase number of services

•Diagnosis based:

- Provider or Health Care Organization receives a fixed, pre-specified payment for each instances

- Monetary incentive to increase number of cases

- Monetary incentive to decrease services per case

•In industrialized countries, case-based payment and capitation method are popular

Capitation:

Organization receives a fixed, pre-specified amount of money per time period (e.g., month, year) for each individual

- Monetary incentive to increase the number of enrollees

- Monetary incentive to decrease services per enrollee

- Provider is responsible to meet defined health needs

- The amount of money per person is set ahead of time

- Does not vary with actual service provided

- Providers bears financial risk

- provides incentive to minimize cost, provides only necessary treatment

•Global Budget

-An organization or providers receives a total budget for a defined period of time

§Salary:

- Only for remuneration

- Incentive to reduce effort

Sources of Government Financing in Nepal:

•General Taxation (Revenue)

•Foreign Aid

•Deficit Financing

–Revenue < Expenditure (Deficit Budget)

•Internal Loan

•External Loan