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Health Systems: Two Dimensions Is financing private or public? Is provision of services private or public? Countries differ in both dimensions. Fig. 11.1. The Effect of Cost Sharing With and Without Physician-Induced Demand Fig. 11.2. The Effect of Implementing Health Insurance on Growth of Health Expenditure: Partial Equilibrium versus General Equilibrium Analysis Fig. 11.3 The Five Control Knobs for Health Sector Reform Source: Roberts, Hsiao, Berman, et al. (2004), p. 27. Reproduced by permission of Oxford University Press. Fig. 11.4. The Relationship between GDP Per Capita and the Public Financing Share Source: Public financing share is from 2006 the World Health Report; GDP per capita is from 2007 World Development Indicators (Sample Size=166); and the regression line is calculated by authors. Table 11.6. Comparative Health Indicators in Average Low- And Middle-Income Countries, India, and China, 2003 Fig. 11.6. The Relationship between Public Financing Share and Public Supply Share Share of Public Supply (%) Poland 100 Canada Turkey 90 Norway Denmark Finland United Kingdom Czech Republic 80 Portugal Italy Mexico 70 Greece Spain France New Zealand Austria 60 50 Germany Australia 40 United States 30 Japan Taiwan 20 10 Korea 0 0 10 20 30 40 50 60 70 Share of Public Financing (%) 80 90 100 FOUR QUADRANTS IN COUNTRY HEALTH SYSTEM CLASSIFICATION SCHEME Upper Right Quadrant : High on public financing from general tax revenue and from ear-marked payroll taxes and high on public provision (hospital provision): Great Britain; Canada; Scandinavian countries The Lower Right Quadrant : High public provision, but largely privately financed (high share of patient out-of-pocket payments=“cash systems”): China; India; many low-income countries The Lower Right Quadrant : High shares of private financing (largely out of private health insurance) and private provision: U.S. The Upper Left Quadrant: Public financing (often public single payer) and private provision: Germany; Japan; South Korea; Taiwan among others. Also, Medicare and Medicaid in U.S. CRITERIA FOR JUDGING HEALTH SYSTEM PERFORMANCE Efficiency Expenditure risk protection Equity TYPES OF EFFICIENCY “X-efficiency” (due to Harvey Leibenstein): produce output unit with the least possible number of inputs Allocative efficiency 1: Output set at point at which marginal benefit equals marginal cost of service Allocative efficiency 2: Set inputs so that ratio of marginal products equals ratios of input prices. If an input price rises, holding everything else constant, use less of it. HOW IS OUTPUT MEASURED IN HEALTH CARE? Hospital days, admissions, “adjusted” admissions Physician visits, relative value units produced Health measures: lives saved, QALYs gained, DALYs reduced, disease-specific measures, e.g., viral load (HIV/AIDS), diarrhea cases averted PRIVATE FINANCING OF 2 TYPES Cash system Private insurance—most efficiency enhancing if high deductibles, high coinsurance, very high copays if have copays at all, no tax subsidies of health insurance premiums; private insurers compete on quality of plan and premiums (price) GENERALIZATIONS Cash system ranks high on efficiency, but poor on expenditure risk protection and equity measures. Without expenditure risk protection motive, health insurance would probably not be common. (Widespread existence of health insurance has led to high expenditure risk.) We do not have universal coverage for dishwasher repair; Consumer Reports recommends that consumers eschew extended contracts. Proposals for competition in health insurance desire to have cake (risk protection) and eat it too (efficiencies). GENERALIZATIONS, CONT. Case for private sector seems to be more compelling for financing than for provision. Extent to which increase in expenditure risk reduces individual welfare depends on individual’s degree of risk aversion. In insurance systems, there is a tradeoff between lower expenditure risk and increased moral hazard. CASH SYSTEMS: OVERVIEW Cash systems very common in low- and middle-income countries Out-of-pocket payments for personal health care services as percent of household non-food consumption: Bangladesh (11%); India (11%); Vietnam (13%); Hong Kong (3%); Malaysia (2%); Thailand (3%); China (5%) Typically private financing/provision overlaid on top of public financing/provision system often of low quality CASH SYSTEMS: INDIA Health sector 6% of GDP of which 4.5% of GDP private. Alternative estimates presented in chapter (p. 485). Health indicators are somewhat better than low-income countries overall, but lower than middle-income countries, including China. Funding by Indian states 2X that of national government. CASH SYSTEMS: INDIA, CONT. 3-15% of population has private health insurance. Health insurance (estimates vary by studies). Individual market shares of private insurers too low to influence price and quantity of care (unlike U.S.). Half of hospitals public; 1/5 of clinics public. Major systems of medicine coexist: allopathic; ayurveda, unani, siddha, homeopathy. Quality of care issues raised (see the Das and Hammer study). CASH SYSTEMS: CHINA China has lower out-of-pocket percentage but percent still high. Was not the case before 1978 with introduction of market-oriented reforms; out-of-pocket payment minimal 1949-78—central planning era. Equal access during central planning era contributed to improved population health. CASH SYSTEMS: CHINA, CONT. Market-oriented reformsdismantling of rural commune system; conversion of many state-owned to private enterprises. In 2003, 44% of urban and 79% of rural residents lacked health insurance. On several indicators, health of urban residents was worse than rural residents in 2006, but consensus seems to be that health was worse in rural than in urban areas overall. Share of out-of-pocket payments in total health expenditures increased from 20.4% in 1978 to 60% in 2000 and remained high post year 2000. CASH SYSTEMS: CHINA, CONSEQUENCES OF TRANSITION TO CASH SYSTEM 1978+ 1. Increased expenditure risk: According to 1 study, in 2003, 14% of urban and 16% of rural population incurred catastrophic medical expense, i.e., >30% of family’s housing spending less subsistence food expenditure. 2. Increased gap population health in urban v. rural areas. 3. Overall slowdown in population health improvement after 1978. Fig. 11.7. The Sources of Health Care Financing in China, 19782005 Source: Huang and Yang. (2009) NEW HEALTH INSURANCE PROGRAMS IN CHINA New Cooperative Medical Scheme for rural population. Urban Resident Basic Medical Health Insurance Scheme for urban uninsured. Medical Assistance for the poorest and most vulnerable populations in rural and urban areas. U.S. HEALTH CARE SYSTEM Before 1930s, U.S. had cash system 1930s: Evolution of nonprofit health insurance plans. Service benefits v. indemnity benefits. Define each. Commercial for-profit v. Blues nonprofit status 1940s: Implementation of tax subsidy of employer-provided health insurance premiums Individual v. group health insurance MANAGED CARE Began with Kaiser plan in 1940s Health care providers have financial incentive to control health care utilization and expenditures—“supply side cost-sharing” (in contrast to “demand side cost-sharing” Prerequisite for managed care to control cost growth without reducing quality substantially is consumer/patient choice of health plan (“exit voice”). MANAGED COMPETITION Leading proponent Alain Enthoven Concept became popular in 1990s; key elements in Clinton Heath Care plan of 1994 (“Hillarycare”) Attributes of managed competition on consumer side: free choice of health plan; consumer pays full cost for higher quality plan at margin. Receives fixed dollar subsidy to cover premium cost in part (may be health risk adjusted). MANAGED COMPETITION, CONT. Quality dimensions considered by consumers in choice of heath plan: provider network size and composition; quality of providers; access—geographic, time of day, appointment delays, etc., types of care covered (above standard benefits package) MANAGED COMPETITION, CONT. Attributes of managed competition on health plan (insurer side): must have ability to exclude certain providers— “selective contracting;” ability to structure benefits to attract enrollees, subject to minimum benefit structure constraints imposed by law/regulation; ability to set premiums; ability to market but subject to constraints on “creamskimming” of good health risks. MANAGED COMPETITION, CONT. Attributes of managed competition- sponsor; sponsor may be employer; sponsor makes fixed dollar premium contribution (may be risk-adjusted)==creates price elastic demand for individual health plans offered by sponors; sponsor offers multiple plans. BACKLASH AGAINST MANAGED CARE Consumers did not like restrictions on utilization. Providers certainly did not like the restrictions either and were able to gain political support from consumers. “Choice of care should be made by you and your doctor, not by some big HMO.” Providers did not like downward pressure of fees. Explain relationship to selective contracting. BACKLASH, CONT. No political inclination to eliminate tax subsidy of employerprovided premiums. “Obamacare” does include tax on “Cadillac plans.” “But there you go again raising taxes. I do not like higher taxes like you do. But don’t touch my Medicare.” Some argue that rise in personal health care expenditures as % of GDP a natural phenomenon. Welfare-maximizing society would select a high share (e.g., Hall and Jones, Quarterly J. of Economics, 2007). COMPARISONS BETWEEN SINGLE AND MULTIPLE PAYERS Cost shifting Patient selection Spillover effects