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Overview of Health Financing Senior Policy Seminar Bangkok, Thailand February 28 – March 1, 2007 George Schieber Human Development Network Key Messages 1. Underlying demographics, epidemiology, and economic situations determine underlying ‘needs’ and ability to meet those needs 2. Reforms must be tailored to individual country circumstances – no magic bullets or one size fits all solutions exist 3. Policies should be based on the economic principles of equity, efficiency, affordability and sustainability which underlie the revenue collection, risk pooling, and purchasing functions of health financing 4. Financing reforms must be accommodated within a country’s current and future ‘fiscal space’ Outline of Presentation • Underlying demographic and epidemiological trends • Health spending patterns • Health financing functions and models • Aid effectiveness and absorptive capacity • Implementation Issues • Challenges and lessons Demographic and Epidemiological Trends Demographics and Epidemiology • Population, size, structure, epidemiology, and growth determines: – current and future underlying health ‘needs’ which have important implications for financing, public and curative health programs, and delivery systems – potential size of the labor force – size of ‘dependent’ populations (e.g., aged and youth) to be supported by working populations • The interdependence of demography/EPI factors with geography, industry and labor force structure, general economic management and industrial policy, and overall political economy factors has important implications for the types of public and private tax and non-tax mechanisms that can be employed to finance the overall government budget and the health sector. Causes of Death Vary Greatly by Country Income Level EAP MDG Attainment East Asia and Pacific 24 countries by number of countries 100% 50% T T P T 0% T T T T T Achieved 1 On track 2 Off track 3 Seriously off track 4 No data 5 -50% T - Thailand -100% Poverty Malnutrition Completion Source: World Bank, DEC, 2006 Gender Child mortality Births Water Sanitation Population Projections, Thailand 2025 2005 75+ 70-74 65-69 60-64 55-59 50-54 45-49 40-44 35-39 30-34 25-29 20-24 15-19 10-14 5-9 0-4 Males 6 Females Females 4 2 0 Percent 2 4 6 Demographics Thailand Demographic Indicators Population (thousands) 2005 2025 62,732 68,850 Population change since 2005 (%) Urban (%) 9.8% 32 Population by age groups # Children under 5 years 4,522 4,247 % 7.2% 6.2% # of Youth under 15 years 13,847 12,781 % 22.1% 18.6% # Women of childbearing age 15,793 13,821 % 25.2% 20.1% # Labor force participation 35,725 % 80.2% # Elderly above 60 years 6,456 13,678 % 10.3% 19.9% Demographics Thailand Demographic Indicators 2000-2005 2020-2025 0.7 0.3 Life expectancy at birth (years) 69.4 73.7 Crude birth rate 15.1 12.6 Crude death rate 7.8 9.3 Total fertility rate 1.3 1.5 24.7 13.4 29.5 16.3 Population growth rate (%) Infant mortality rate (deaths per 1,000 live births) Under-five mortality rate (deaths per 1,000 live births) Maternal mortality ratio (maternal deaths per 100,000 live births) (Year 2000 estimate) 44 Dependency Ratios in EAP Will Not Present a Major Challenge in the Future Solomon Islands Cambodia Lao PDR Vanuat u Papua New Guinea Tonga Philippines M icronesia, Fed. St s. 2020 Kiribat i Samoa 2000 Viet nam M alaysia M ongolia M yanmar Fiji Indonesia China Korea, Dem. Rep. Thailand 0 20 40 Dependency Ratio: The ratio of the economically dependent part of the population to the productive part; arbitrarily defined as the ratio of the elderly (ages 65 and older) plus the young (under age 15) to the population in the working ages (ages 15-64). 60 80 100 Source: World Bank NCDs and Injuries Account for Seventy Percent of Thailand’s BOD Burden of Disease (DALYs) in the Thailand - 2002 Injuries 13% Non-communicable diseases 57% Communicable, maternal, and perinatal 30% Source: World Health Organization Future Aging Will Affect Total Health Expenditures in Certain EAP Countries Source: World Bank Health Spending Patterns Health Expenditures, 2004 (population-weighted) Under-5 Regions & Income Levels Per capita GDP ($US) Per capita health expenditures ($US) Per capita health expenditures ($USPPP) East Asia & Pacific Eastern Europe & Central Asia Latin America & the Caribbean Middle East & North Africa South Asia Sub-Saharan Africa 1,457 3,801 3,777 1,833 611 732 64 249 271 103 27 45 239 552 608 270 131 119 4.4 6.6 7.3 5.6 4.6 6.3 39.8 67.6 51.0 48.8 18.8 42.1 51.0 26.5 36.3 46.3 76.1 46.3 0.5 1.1 0.7 1.1 1.6 6.8 70 69 72 69 63 46 37 34 31 55 92 168 Low-income countries Lower middle-income countries Upper middle-income countries High-income countries World 533 1,681 5,193 33,929 6,523 24 91 339 3,812 658 105 298 689 3,606 771 4.7 5.4 6.7 11.2 10.1 23.9 47.3 57.6 60.3 59.0 70.0 42.9 30.3 14.9 17.9 5.5 0.7 0.7 0.0 0.2 59 70 69 79 67 122 42 28 7 79 Total health Public (% total expenditures (% health GDP) expenditures) mortality rate Out-of-pocket External (% total Life Expectancy (per 1,000 live (% total health health births) expenditures) expenditures) at birth (years) Source: World Development Indicators, IMF Government Finance Statistics Notes: Per capita indicators weighted by population, ratio indicators by ratio denominator Revenue and GDP data reflect averages between 2000 and 2004. Out-of-pocket health spending in Sub-Saharan Africa excludes South Africa, which, if included, changes the estimate to 26 percent of total health spending. Key Expenditure Facts • Public spending accounts for less than 25% percent of total health spending in LICs, some 50% in MICs but over 60% in HICs: → • Public spending on health is some $10 per capita in LICs, over $100 in MICs, and $2000 in HICs: → • Policy-makers need to focus on improving formal risk pooling mechanisms in order to provide financial protection and protect the poor. Social health insurance accounts for some 2% of all health spending in LICs, 20% in MICs, and 30% in HICs: → • Policy-makers in LICs will be challenged to provide an essential package of basic services. Out-of-pocket payments account for 70 percent of health spending in LICs, 40 percent in MICs and 15 percent in HICs: → • Policy-makers need to focus on private spending as well as public. Policy-makers in LICs need to carefully evaluate whether they have the enabling conditions in place for SHI to succeed. While external sources on average account for only some 6 percent of total health spending in LICs, in over 20 African countries, it accounts for more than 30 percent: → Policy-makers in LICs and MICs need to keep focused on internal sources of finance, as these sources account for the bulk of their health revenues. Comparison of Health Insurance Schemes in Thailand, 2002 Characteristic CSBMS SSS UCS 1.1 Beneficiaries Fringe benefit Compulsory Social welfare 1.2 Model Public reimbursement Public contracted Public contracted 1.3 Covered population Government employees and their dependants Private sector People not covered by Employee>1 CSBMS or SSS 1 Scheme Nature 2 Benefit Package 2.1 Ambulatory services Public only Registered public and private Registered public and private 2.2 Inpatient services Public Registered public and private Registered public and private 2.3 Choice of provider Free of choice Registration required Registration required 2.4 Conditions included Comprehensive package Non work related illness Comprehensive package 2.5 Conditions excluded No 15 conditions 12 conditions 2.6 Maternity benefits Yes Yes Yes 2.7 Annual physical check -ups Yes No Yes 2.8 Prevention and health promotion Yes Health education, immunization Yes 2.9 Services not covered Special nurse Private bed and special nurse Private bed and special nurse 3.1 Source of funds General tax Tripartite, 1% of payroll each General tax 3.2 Financing body Ministry of Finance Social Security Office National Health Security Office 3.3 Payment mechanism fee-for-service(>2000 baht) Capitation( 1500 baht) Capitation for OP;DRG for IP(1,202baht) 3.4 Co-payment Yes: at public and private hospital Maternity, emergency Yes, 30 baht per visit , IP private clinic only for life-threatening care if beyond ceiling 2106 baht 519 baht 3 Financing 3.5 Per capita tax subsidy Source: Bureau of Policy and Strategy, 2005, Wibulpolprasert, 2007. 1275 baht Thailand NHA THAILAND : National Expenditure on Health (Bhat) A. RATIOS AND LEVELS 1998 1999 2000 2001 2002 2003 2004 I. Expenditure ratios 3.7 3.5 3.4 3.3 3.4 3.3 3.2 General government expenditure on health (GGHE) % THE 54.8 54.8 56.1 56.3 60.2 61.6 62.1 Private expenditure on health (PvtHE) % THE 45.2 45.2 43.9 43.7 39.8 38.4 37.9 GGHE % General government expenditure 11.4 10.5 10.8 10.3 11.8 13.6 12.5 Social security expenditure on health % GGHE 29.0 29.5 30.2 34.4 30.8 32.0 31.5 Net out-of-pocket spending on health (OOPs) % PvtHE 78.2 76.4 76.8 75.7 76.3 74.8 74.0 Private prepaid plans expenditure on health % PvtHE 11.6 12.6 12.8 13.6 13.4 14.6 15.0 0.0 0.0 0.0 0.1 0.2 0.3 n/a THE per capita at exchange rate (US$) 69 71 68 62 68 76 83 GGHE per capita at exchange rate (US$) 38 39 38 35 41 47 52 THE per capita at international dollar rate 220 217 223 226 242 260 274 GGHE per capita at international dollar rate 121 119 125 127 146 160 170 Total expenditure on health (THE) % GDP Externally funded expenditure on health % THE II. Per capita levels Many Countries Spend Less than Expected on Government Health Programs 8 Domestically Financed Government Health Spending as % of GDP Croatia 7 Czech Republic 6 Tunisia Colombia Panama 5 Lesotho Belarus Solomon IslandsTurkmenistan Bolivia 4 2 1 0 Estonia Jordan Namibia El Salvador Turkey Samoa Lebanon Armenia Algeria Tonga Kyrgyz Republic Paraguay Papua New Guinea Peru Zambia Moldova Zimbabwe Jamaica Bulgaria The BurkinaGambia, Faso Guatemala China Djibouti Ghana Egypt, Arab Rep. Mali Guinea Philippines Rwanda Vanuatu Morocco Vietnam EritreaTogo Ecuador Chad Sudan Pakistan Cote Cameroon D'Ivoire Haiti Georgia Burundi Malawi Indonesia Nigeria Uganda 0 2,000 Costa Rica Dominica Honduras Mongolia 3 Slovak Republic Hungary Uruguay Macedonia, Fyr 4,000 Fi Botswana Latvia Brazil 6,000 Chile St. Kitts And Nevis Mexico Oman Mauritius Malaysia 8,000 Per capita income PPP PPPPPP PPP Saudi Arabia Poland South Africa Thailand Gabon Dominican Republic Argentina 10,000 12,000 14,000 Life Expectancy and GDP Life Expectancy vs GDP per capita 90 Life Expectancy 80 Thailand 70 60 50 40 30 10 100 1,000 GDP per capita 10,000 100,000 Infant Mortality and GDP Infant Mortality Rate (per 1,000 live births) Infant Mortality vs GDP per capita 200 180 160 140 120 100 80 60 40 Thailand 20 0 100 1000 10000 GDP per capita 100000 Child Mortality and GDP Under-5 Mortality (per 1,000 live births) Child Mortality vs GDP per capita 300 250 200 150 100 50 Thailand 0 100 1,000 10,000 GDP per capita 100,000 Total Health Spending (% of GDP) and GDP Total Health Expenditure (percentage of GDP) Total Health Expenditure vs GDP per capita 18 16 14 12 10 8 6 4 2 0 Thailand 10 100 1000 GDP per capita 10000 100000 Public Health Spending (as % of GDP) and GDP Public Health Expenditure (percentage of GDP) Public Health Expenditure vs GDP per capita 16 14 12 10 8 6 4 2 0 Thailand 10 100 1000 GDP per capita 10000 100000 Public Share of Total Health Spending and GDP Government Health Expenditure (percentage of THE) Public Health Expenditure vs GDP per capita 120 100 Thailand 80 60 40 20 0 10 100 1000 GDP per capita 10000 100000 Private Share of Total Health Spending and GDP Private Health Expenditure (percentage of THE) Private Health Expenditure vs GDP per capita 100 80 60 40 20 Thailand 0 10 100 1000 GDP per capita 10000 100000 Total Health Spending Per Capita and GDP Total Health Expenditure per capita (exchange rate) Total Health Expenditure per capita vs GDP per capita 10000 1000 100 Thailand 10 10 100 1000 GDP per capita 10000 100000 Infant Mortality and Public Health Spending Per Capita ($PPP) Infant Mortality Rate (per 1,000 live births) Infant Mortality vs Public Health Spending 200 150 100 50 Thailand 0 1 10 100 1,000 Public Health Spending per capita (PPP) 10,000 Infant Mortality and Total Health Spending Per Capita ($PPP) Infant Mortality Rate (per 1,000 live births) Infant Mortality vs Total Health Spending 250 200 150 100 50 Thailand 0 10 100 1000 Total Health Spending per capita (PPP) 10000 Health Financing Functions and Models Thailand Financing System Source: Tangcharoensathein and Pitayarangsarit, 2003, Wibulpolprasert, 2007. Health Financing Functions and Objectives Functions Revenue Collection Objectives raise sufficient and sustainable revenues in an efficient and equitable manner to provide individuals with both a basic package of essential services and financial protection against unpredictable catastrophic financial losses caused by illness and injury Pooling manage these revenues to equitably and efficiently pool health risks Purchasing assure the purchase of health services in an allocatively and technically efficient manner Financing Needs to Deal with Revenue Collection, Risk Pooling, Management and Payment Revenue Collection Public Taxes Public Charges/ Resource Sales Pooling Resource Allocation or Purchasing (RAP) Government Agency Social Insurance or Sickness Funds Public Providers Private Insurance or Community-based Organizations Private Providers Mandates Grants Loans Private Service Provision Private Insurance Communities Out-of-Pocket Employers Individuals And Households Basic Packages: An Effort at Setting Priorities Modern and traditional medicine offer a very large and growing number of health interventions. But with the limited availability of public resources, not all can be publicly afforded. Include? Include? Select a limited set of health interventions, that you can finance with available resources, and that maximizes health status. Include? Include? Maximum possible health status Source: Bitran Set of interventions Include? Why Consider Basic Packages? • Growing sense that main health problems remain only partly tackled. • Current resources spent “otherwise” would result in greater health gains. • In social or private health insurance, benefits package must be made explicit: people pay a known premium in exchange for a known coverage, or set of benefits. Enrollees want to know their rights explicitly. • Under social insurance, resource allocation is accomplished through basic benefit design Source: Bitran 44 Characteristics of Most BBPs • Positive lists of services • Negative lists (e.g., services not covered – cosmetic surgery) • Certain catastrophic conditions (e.g., renal disease, cancer) • All services covered (but generally rationed by supply constraints) • Separate packages for different groups Inclusion and Exclusion List of Expensive Healthcare Interventions of the UCS • Inclusive List – – – – – – – – – – – – Chemotherapy for specific cancers Radiation therapy for specific cancers Open heart surgery including prosthetic cardiac valve replacement Percutaneous Transluminal Coronary Angioplasty (PTCA) Coronary Artery Bypass Grating (CABG) Stent for treatment of Atherosclerotic Vessels Prosthetic hip replacement therapy Prosthetic shoulder replacement therapy Neurosurgery, e.g. craniotomy Antifungal treatments for cryptococcal meningitis Antiretroviral treatment for patients Living with HIV/AIDS Source: NHSO 2004, Wibulpolprasert, 2007. • Exclusive List – – – – – Renal replacement for patients with end stage renal disease Organ transplantation Cosmetic surgery Infertility treatment The Difficulties in Establishing Prioritizing Rules for Basic Package • SHI and National Health Services are established to achieve several goals: health gains, redistribution, protection against financial risks and public satisfaction • What are the proper trade-offs between the different goals? • Who should decide these trade-offs? Source: Modified from Hsiao, 2005 Nine Criteria for Establishing a BBP for Public Spending on Health Care Catastrophic Cost Poverty Externalities Vertical Equity Cost Effectiveness Public Goods Horizontal Equity Rule of Rescue Public Demands Key: Efficiency criteria Equity or Ethical Criteria Political Criterion Source: P. Musgrove Decision Tree for Public Resource Allocation Yes Cost-Effective? No Public Good? No Significant Externalities Yes No Yes No Adequate Private Demand? Yes Contributory Insurance Appropriate? No Yes Catastrophic Cost No Yes Beneficiaries Poor? Public? Do Not Subsidize Finance Publicly Private? Source: P. Musgrove Yes No (Regulated) Private Market Criteria for Establishing a BBP • • • • • • • • • Equity considerations – focus on poor who face the highest disease burden Burden of disease – DALYs, DALEs, QALYs, YLL, etc., (i.e., 6 major communicable diseases -- AIDS, TB, malaria, measles, diarrheaol disease and acute respiratory infections -- account for over 60% of global communicable disease burden and 80% of the mortality gap between rich and poor countries) Cost-effectiveness -- need to maximize health impacts given limited resources Public goods and externalities – individual decisions will result in under consumption Risk pooling -- improve overall welfare through better predictability of large unforeseen expenditures Existing capacity to deliver – resource constraints and time to fix them Linkages across services at different levels of the system Budget rigidities – may need to change budget processes Transaction costs – administrative costs incurred in changing service mix and/or delivering BBP Method and Measurements to Prioritize Resource Allocation for A Single Goal • Method: Cost-effectiveness; CB • Measurements Health gains—QALY, DALY, IMR Risk Protection—% impoverished, (Wagstaff) Public satisfaction—public surveys Cost-Effective Method • The use of cost-effectiveness or similar techniques, although this is only a departing point that needs social validation. • The problem of cost-effectiveness, as it has been used: limited knowledge of marginal costs and benefits, particularly non-pecuniary B&C, may lead one to underestimate the cost-effectiveness ratio Cost Of Demand Promotion And Compliance Must Be Included Here Cost-effectiveness Ratio Cost Of Provision = ----------------------------------------------Effectiveness Of Provision Source: Modified from Hsiao, 2005 Measuring the Burden of Disease: Combining Premature Mortality and Disability: The DALY Method • • • • 1993 onward: World Bank and World Health Organization promoted use of DALY method to set priorities in health with cost-effectiveness analysis (CEA) (where DALYs were a measure of effectiveness) and thus to construct basic packages. There were objections within and outside the World Bank in 1993 when the Bank’s WDR 1993 “Investing in Health” was published. Objections based on 2 grounds: – DALY method violates individual utility maximization; and – Providing catastrophic coverage is an important policy objective which improves individual utility, but inconsistent with cost-effectiveness prioritization (which uses DALYs or any other measure of effectiveness). Example, coverage for some expensive hospital care of low costeffectiveness may be desired by individuals. Still DALYs concept is useful to measure the BOD and is therefore explained next. Also, many countries are currently basing their priorities on cost effectiveness and DALYs. Source: Hsiao, 2005 The Wish: Basic Packages May Help Improve Allocative Efficiency • A second objective in defining a basic package: improving allocative efficiency – This requires that explicit criteria be adopted to improve allocations. – The process of prioritizing public health spending thus becomes more transparent. – Of course, none of this will work, or make any public policy sense, unless there is demand for newly offered services Source: Hsiao 2005 Economic Evaluation of Health Technology in the United Kingdom: The Case of the National Institute of Clinical Excellence (NICE) • Rationale for economic evaluation of health technologies and drugs in the UK – Concerns over the high cost of new technologies and drugs – Local variations in the availability of certain treatments becomes a political issue The Role of the National Institute for Clinical Excellence (NICE) in the UK • Created in 1999 to appraise the clinical and cost effectiveness of health technologies as referred by the Dept of Health • Provides a transparent decision-making process regarding what the National Health Service (NHS) should fund in order to maximize health gains (as measured in QALYs) in the UK • NHS organizations must take NICE’s recommendations into account when planning and delivering care, but NICE has no power to enforce • Similar systems exist in Australia, New Zealand, and Canada, but NICE is unique by assessing a broad range of interventions: pharmaceuticals, medical devices, diagnostic techniques, surgical procedures, other therapeutic technologies, and health promotion activities • It also has a formal appeals process How NICE Makes Decisions • The two most important factors are: 1) incremental cost effectiveness ratio (ICER) – Measures how much more money is needed to achieve one more QALY for a given intervention compared to the relevant alternative 2) Cost effectiveness threshold – When the government has a fixed budget, this represents: • Value of willingness to pay for one more QALY • Opportunity cost (QALYs lost) when another government treatment is displaced • Shadow price of the budget constraint • Decision making requires both ICERs and the specification of a threshold The Value of the Cost Effectiveness Threshold • The true value of the threshold is unknown and ‘searching’ for it (which is what happens in reality) is a second-best solution • In practice, NICE tends to use £ 20,000 – £30,000 as the range of acceptable thresholds • Examples of some interventions that have been accepted Intervention Condition ICER Imatinib Chronic myeloid leukemia £26,000 Riluzole Motor neuron disease £39,000 (most expensive ever approved) Implementation Bottlenecks Must Be Addressed • • • • • Human resource constraints Constraints to physical accessibility Supply and logistical problems Technical and organization capacity constraints MBB (Marginal Budgeting for Bottlenecks), a resource allocation tool, can be used to estimate the costs of removing system-wide impediments to service delivery Source: A Soucat , W.V. Lerberghe, F. Diop , S. N. Nguyen and R. Knippenberg, Marginal Budgeting For Bottlenecks: A New Costing Tool and Resource Allocation Practice to Buy Health Results, World Bank, November 2002. Summary of Arguments in Favor of Basic Benefit Packages • In sum, it is hoped that the adoption of basic packages can lead to: – Greater public accountability – Higher allocative efficiency – Better productive efficiency – More equitable access to services Hsiao, 2005 What is Done With Services Not Included in the Package? • Continue to finance some out of public budgets, but with heavy rationing • Discontinue public financing: only those with ability to pay can obtain such services • Services not covered in public package can be included in optional privately-financed packages Source: Hsiao 2005 What´s the Cost of The Package? • Estimation of unit costs • Supply and demand response and affect on unit costs • Marginal bottleneck for budgeting (MBB) approach • Demand forecasts How to Finance the Package(s)? • All general revenue • Some general revenue subsidies, other taxes, and some private financing by those with ability to pay • Is financing of the benefits package compulsory for all? • Is private financing used to enhance available funding, promote efficient use of services and/or cross-subsidize the poor with contributions made by the non-poor? Summary of Policy Challenges for Designing Benefit Packages 1. 2. How to prioritize? What criteria should be used? How to reach consensus (with medical profession, with members of society, with interest groups)? 3. What is done with services not included in the package? 4. How to go through the transition process? 5. How to provide the package? 6. What’s the cost of the package? 7. What will be the health impact of the package? 8. How to finance the basic package? 9. Who is the beneficiary of public subsidies? 10. How are public subsidies channeled? 1. Revenue Collection Domestic Resource Mobilization is Much More Limited in MICs and LICs Regions Social Security Total Revenue Tax Revenue Taxes as % of as % of GDP as % of GDP GDP Early 2000s Americas Sub-Saharan Africa Central Europe, Baltics, Russia & Other Former Soviet Republics Middle East & North Africa Asia & Pacific Small Islands (Pop. < 1 million) 20.0 19.7 16.3 15.9 2.3 0.3 26.7 26.2 16.6 32.0 23.4 17.1 13.2 24.5 8.1 0.8 0.5 2.8 Low-income countries Low middle-income countries Upper middle-income countries High income Countries 17.7 21.4 26.9 31.9 14.5 16.3 21.9 26.5 0.7 1.4 4.3 7.2 Thailand Central Government Domestic Resource Mobilization (revenues as a percentage of GDP) 0.2 0.18 0.16 0.14 0.12 Total Tax 0.1 0.08 0.06 0.04 0.02 0 2001 2002 2003 Source: IMF, 2006. 2005 and 2006 are projections. 2004 2005 2006 Some Countries Could Make Greater Domestic Resource Mobilization Efforts Central govn't revenues (%GDP) 60 50 Fiji 40 Thailand 30 Malaysia Bhutan 20 Indonesia 10 Nepal Pakistan China India Philippines 0 10 100 1000 10000 100000 GDP per capita ($US) Source: IMF Thailand: Composition of Tax Revenues: 2006 (as percent of GDP) 20 18 16 Total revenues Non tax Tax Income and profits Consumption International Trade Other 14 12 10 8 6 4 2 0 Source: IMF 2005 Tax System Criteria • Revenue adequacy and stability: the tax should raise a significant amount of revenue, be relatively stable, and be likely to grow over time • Efficiency: minimizes economic distortions • Equity: should be fair in terms of the treatment of different income groups • Ease of collection: should be simple to administer • Political acceptability: transparency, broad diffusion, and clarity about the uses of the tax promote acceptability 1a. Fiscal Space and Macroeconomic Management Essential Elements of the Fiscal Policy Framework • Overall fiscal balance—reflects its link to the government’s net financing requirements and to the external current account, but ultimately need to examine other key fiscal indicators • Ensure that fiscal policy well coordinated with monetary policy to ensure limited inflation – This imposes limits on magnitude of seignorage creation; – Also imposes limits on how much credit to be provided to the government – Avoid crowding out of the private sector – Concerns for fiscal sustainability/solvency • Particularly if limited size of domestic financial markets, need to be cautious about expansion in size of domestic debt Source: Heller Debt Sustainability Considerations • • • Debt sustainability framework one tool to assess whether government has capacity to finance external debt—concessional or nonconcessional – Also, inclusion of domestic debt in order to judge the sustainability of a government’s overall debt sustainability framework. – Leads to focus on primary balance—to judge whether debt to GDP ratio will remain stable Judging magnitude of implicit debt; contingent liabilities – Government can seek to encourage private sector involvement in creation of public infrastructure or delivery of public services through public-private partnerships—but does this lead to contingent liabilities that enhances the government’s vulnerability to a fiscally unsustainable position – Social Insurance obligations: e.g., government civil service pension schemes Judging overall deficit exclusive of grants: in a world of scaled up aid flows—even grants—need to be aware of how dependent government expenditure programs are to potential shortfalls in external assistance – Implications of sizeable increase in grants as proportion of total expenditures Source: Heller Other Fiscal Indicators • Focusing on current balance (golden rule) • Determine extent of government savings • Safeguard investment at times of fiscal consolidation • Take account of the fact that investments create assets (which may match debt liabilities on the balance sheet) • But biases against investments in human capital • For resource-rich countries, take account of fact that oil is nonrenewable and consumption reduces government wealth; Use nonoil-fiscal deficit: judging the extent of reliance on oil resources; capacity to finance domestic outlays in the absence of oil receipts Source: Heller Dutch Disease Considerations • With aid scaling up, an additional consideration: – Concern that higher aid inflows will be spent but not absorbed; experience observed in mature stabilizers – In this case, one observes that reserves are built up to avoid nominal exchange rate appreciation, but that higher aid-financed spending comes at expense of efforts to sterilize implied increase in the domestic money supply: • What gets crowded out? Other nonaided government sectors? Private sector? – Is it possible that too much aid—coupled with remittances—might through its exchange rate effects jeopardize long-run growth Source: Heller Future GDP Growth by Region 10 Real GDP Growth by Region 8 Percent 6 4 2 0 1990-2000 -2 2001 EAP 2002 SAR Year 2003 LAC Source: World Bank, Global Economic Prospects and the Developing Countries, 2005, 2006 2004 ECA 2005 SSA 2006-15 MNA Real GDP Growth in the Thailand (%) 7 6 5 4 Real GDP 3 2 1 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Source: IMF 2005. 2005-10 figures are projections based on medium term scenario Source: World Bank Vietnam Vanuatu Tonga Thailand Sri Lanka Solomon Islands Samoa Philippines Papua New Guinea Pakistan Nepal Mongolia Maldives Malaysia Lao PDR Indonesia India Fiji China Cambodia Bhutan Bangladesh Some Countries Face Difficult External Debt Repayment Problems (External Debt as % GNI, 2003) 160% 140% 120% 100% 80% 60% 40% 20% 0% Thailand Debt to GDP Ratios: 2001-2010 0.6 0.5 0.4 External Public Sector 0.3 0.2 0.1 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Source: IMF 2005. Figures for 2005-2010 are projections. Fiscal Space* is Needed *Budgetary room that allows a government to provide resources for a desired purpose without any prejudice to the sustainability of its financial position Aid Expenditure Ef f iciency Revenue Borrow ing • Estimates of revenue effort may suggest that an additional several percent of GDP could be raised through domestic revenue measures. • • • • Additional grants from donors are unlikely. Spending efficiency can be improved. Macroeconomic and debt management may suggest that new borrowing over the period should be limited. Seignorage (govt prints money which it loans to itself) is yet another, but generally limited, mechanism for creating fiscal space. Source: World Bank, PREM:, 2007. The Fiscal Space Debate • Ultimately a cataloguing of potential public resources for spending on meritorious public goods without jeopardizing macroeconomic stability – – – – – – – Higher tax burden-rates or improved administration Cutting other expenditures Enhance effectiveness of spending Seignorage creation Domestic borrowing External grants External loans • Considerations on debt sustainability, crowding out, and macro stability remain limiting factors Source: Heller Critical Concerns in Fiscal Space -1 • Decisions today MATTER: One must consider the future spending implications of current spending programs – Some expenditure programs, once started, effectively preempt future fiscal space • May be ripple effects of policies to enhance absorptive capacity (e.g., financial incentives for scarce professionals). Supplementing wages in one sector can distort the wage scale in relation to other public sector employees. This could effectively absorb some fiscal space. Source: Heller Critical Concerns in Fiscal Space -2 • Be cautious about confusing the issue of fiscal space with other constraints to a scaling up of programs – Governance limits – Absorptive capacity limits Corruption – Concern about vulnerability associated with excessive dependency on external donors Source: Heller Critical Concerns in Fiscal Space -3 • What are implications of new debt cancellation initiative for the fiscal space debate? – Will create some fiscal space—freeing up of resources previously used for debt service (interest and amortization)—but note that much of the debt being canceled was at concessional rates already and one would need to estimate whether any offset in terms of reduced flow of grants/concessional loans from IMF/Bank – In principle, enhances capacity of countries to engage in new borrowing—Risks and Vulnerabilities here – But, does not mean that the productivity of the expenditure financed by loans is unimportant—now more than ever need to avoid the problems of the past in terms of unproductive wasteful borrowing Source: Heller Critical Concerns in Fiscal Space - 4 – Particular caution about borrowing, particularly on nonconcessional terms, for recurrent type expenditure programs with benefits only realizable over the long-term – There will be many temptations from creditors to provide new loans – Emphasizes need for prudential debt management/expenditure assessment procedures Source: Heller Fiscal Sustainability is Critical • Generally defined in terms of self-sufficiency -- over a specific time period, the responsible managing entity will generate sufficient resources to fund the full costs of a particular program, sector, or economy including the incremental service costs associated with new investments and the servicing and repayment of external debt. • The capacity of the health system to replace withdrawn donor funds with funds from other, usually domestic, sources. • The sustainability of an individual program is defined as “capacity of the grantee to mobilize the resources to fund the recurrent costs of a project once the investment phase has ended”. • A softer definition is that the managing entity commits a stable and fixed share of program costs. Implementation and Capacity Issues Substantially Influence Fiscal Policy Approaches • • This has not been a talk about public expenditure management, revenue administration, or capacity for fiscal policy management. But these factors largely determine the quality of the fiscal policy that can be implemented in a given country and the relevance of the various types of fiscal “rules” that govern fiscal policy. Most governments rely on some form of fiscal rules to government fiscal policy management to some extent: – – – – – – Cash rationing Limiting access to government bank credit Limiting the overall budget deficit share in GDP or the primary deficit Golden rules Observance of debt thresholds (Maastricht) Focusing on fiscal sustainability • Taking account of implicit liabilities; contingent liabilities; government guarantees • But the capacity of fiscal administration will largely determine how sophisticated are the fiscal rules that can be used and the quality of fiscal policy Source: Heller 2. Risk Pooling Risk Pooling and Prepayment • Risk pooling enables the establishment of ‘insurance’ as large unpredictable risks at the individual level become predictable when pooled over a large number of individuals • Risk pooling enables the averaging of health risks over all pool members and provides the opportunity for redistribution among high and low risk pool members • Prepayment provides protection against unpredictable large losses and redistribution between high and low income individuals: – In risk rated private insurance, the premium reflects the average predicted risk of pool members, thus enabling pool members to face a predictable upfront payment – In a public system, pre-payment whether through social security or general revenue contributions allows the separation of payments from expected medical risks and thus enables redistribution from high to low income individuals What do We Mean by Risk Pooling? Cross-subsidy from low-risk to high-risk Cross-subsidy from rich to poor (risk subsidy) (equity subsidy) Low risk High risk Poor Health risk Rich Income Cross subsidy from productive to non-productive part of the life cycle Produ ctive Nonproduc tive Age Insurance Can Be Complex • Adverse selection occurs when sicker than average individuals enroll in competing public or private health insurance plans • This can destabilize insurance markets through premium spirals if healthier individuals disenroll • Insurers react by trying to screen out such high risk individuals by: – – – – requiring medical exams examining claims history having waiting periods excluding pre-existing conditions from coverage – refusing insurance coverage • These instabilities can be offset by: – regulation of insurers – marketing insurance to groups formed for other purposes (e.g. employment) – having a mandatory public insurance program Insurance Encourages Overuse of Services • This phenomenon known as moral hazard results because of the tendency for insurance to increase the probability of the occurrence of the event that is being insured against • It is present in both public and private insurance • Insurance design features to mitigate moral hazard include: – cost sharing – limits on benefits – frequent renewability – utilization management Do Insurance Market Instabilities Necessitate Public Financing? Public financing can: – pool risks over the entire population – eliminate adverse selection and medical underwriting problems – still face cost problems due to moral hazard Private insurance can: – segment health risks by underwriting groups – preclude economic losses from coercive taxes – allow for greater consumer choice 3. Purchasing Efficient Purchasing is Essential • • • • • • What care will be produced? How will care be produced? How much care will be produced? What level of ‘quality’ will be produced? To whom will care be offered? What kinds of care and how much will consumers ‘demand’/access? • By what method, how much, and by whom will providers be paid and/or consumers reimbursed? Source: Modified from Rena Eichler, WB, 2003 Public Spending Efficiency Could be Improved (Log difference between actual and predicted by GDP per capita x100) Under-5 mortalty rate 2000 150 100 Lao PDR Papua New Guinea 50 Thailand 0 Pakistan Cambodia Indonesia India Philippines -50 Malaysia Nepal Bangladesh China -100 Vietnam -150 -150 -100 -50 Sri Lanka 0 50 100 150 Per capita public spending on health 1990s average (Log difference betw een actual and predicted by GDP per capita x100) * Public spending and child mortality rate are shown as the percent deviation from rate predicted by GDP per capita Source: Spending and GDP from World Development Indicators database. Under-5 mortality from UNICEF 2002`, WDR 2004 4. Major Health Financing Models Major Health Financing Models • National Health Service -- systems financed through general revenues, covering whole population, care provided through public providers (General revenues dominate financing in some 106 of 191 countries) • Social Health Insurance -- systems with publicly mandated coverage for designated groups, financed through payroll contributions, semiautonomous administration, care provided through own, public, or private facilities (Over 60 countries have established SHI systems) • Community-Based Health Insurance -- not-for-profit prepayment plans for health care, financed through private voluntary contributions, with community control and voluntary membership, care generally provided through NGO or private facilities • Voluntary Health insurance -- financed through private voluntary contributions to for- and non-profit insurance organizations, care provided in private and public facilities • User Fees – charges to individuals for publicly provided services Evolution of Health Financing Systems Low Income Countries Patient Out-ofPocket Social Insur Gov’t Budget Community Financing Middle Income Countries High Income Countries Priv. insur Patient Outof-Pocket Patient Outof-Pocket National Health Service Model Social Insur Social Health Insurance Model Gov’t Budget Private Insurance Model Source: Modified from A. Maeda Major Health Financing Models Model National Health Service Revenue Source Groups Covered Pooling Organization Care Provision General revenues Entire population Central government Public providers Social Health Insurance Payroll taxes Specific groups Semiautonomous organizations Own, public, or private facilities Communitybased Health Insurance Private voluntary contributions Contributing members Non-profit plans NGOs or private facilities Voluntary Health Private Insurance voluntary contributions Contributing members For- and nonprofit insurance organizations Private and public facilities None Public and private facilities (public facilities) Out-of-Pocket Individual Payments payments to (including public providers user fees) Major Health Financing Models Model National Health Service Revenue Source Groups Covered Pooling Organization Care Provision General revenues Entire population Central government Public providers Social Health Insurance Payroll taxes Specific groups Semiautonomous organizations Own, public, or private facilities Communitybased Health Insurance Private voluntary contributions Contributing members Non-profit plans NGOs or private facilities Voluntary Health Private voluntary Contributing contributions members Insurance For- and nonprofit insurance organizations Private and public facilities Individual Out-of-Pocket payments to Payments (including public providers user fees) None Public and private facilities (public facilities) What is a NHS? Systems financed through general revenues, covering whole population, care provided through public providers Three main features: 1. Funding comes primarily from general revenues. • 2. Provide medical coverage to the whole population. • 3. Taxes, other public revenues from sales of natural resources, sales of government assets, public tolls, borrowing and grant assistance, earmarked taxes or funds from local authorities. Health care coverage is considered an attribute of citizenship. Usually deliver health care through a network of public providers. • • • MoH heads a large network of public providers organized as a national health service. Facilities are owned by the government, and health personnel are public employees. However, some countries reimburse or contract with private providers. NHS Systems Systems financed through general revenues, covering whole population, care provided through public providers Strengths – Pools risks for whole population – Relies on many different revenue sources – Single centralized governance system has the potential for administrative efficiency and cost control Weaknesses – Unstable funding due to nuances of annual budget process – Often disproportionately benefits the rich – Potentially inefficient due to lack of incentives and effective public sector management Major Health Financing Models Model National Health Service Revenue Source General revenues Social Health Insurance Payroll taxes Communitybased Health Insurance Private voluntary contributions Groups Covered Entire population Specific groups Pooling Organization Central government Semiautonomous organizations Care Provision Public providers Own, public, or private facilities Contributing members Non-profit plans NGOs or private facilities Voluntary Health Private voluntary Contributing contributions members Insurance For- and nonprofit insurance organizations Private and public facilities Individual Out-of-Pocket payments to Payments (including public providers user fees) None Public and private facilities (public facilities) What is Social Health Insurance? Systems with publicly mandated coverage for designated groups, financed through payroll contributions, semi-autonomous administration, care provided through own, public, or private facilities Most common features and principles: 1. Membership is publicly mandated for a designated population. – Occurs through an incremental process. – From existing employer-based insurance schemes to compulsory schemes for specific employment groups to SHI. 2. Direct link between the payment of contributions to finance the system and the receipt of medical care benefits. – Only contributors have the right to access specific items of care. – “There is a public commitment to take and give under prescribed conditions stipulated by laws and regulations.” (Ron, Abel-Smith, and Tamburi 1990). What is Social Health Insurance? (2) 3. Social solidarity is essential. – Implies a high level of cross-subsidization across the system, between rich and poor, low-risk and high-risk people, and individuals and families 4. Management of social health insurance involves some degree of autonomy from the government, often through quasiindependent organizations in charge of the system and in principle the organization has to maintain its own financial solvency. Social Health Insurance Systems with publicly mandated coverage for designated groups, financed through payroll contributions, semi-autonomous administration, care provided through own, public, or private facilities Strengths • • • • • • • Additional health revenue source As a ‘benefit’ tax, there may be more ‘willingness to pay’ Removes financing from annual general government appropriations process Generally provides covered population with access to a broad package of services Often has strong support from population Can effectively redistribute between high and low risk and high and low income groups in the covered population Often serves as the basis for the expansion to universal coverage Weaknesses • • • • • • • Poor are often excluded unless subsidized by government Payroll contributions can reduce competitiveness and lead to higher unemployment Can be complex and expensive to manage, which is particularly problematic for LICs and some MICs Governance and accountability can be problematic Can lead to cost escalation unless effective contracting mechanisms are in place Often provides poor coverage for preventive services and chronic conditions Often needs to be subsidized from general revenues Major Planning Issues (1) • • • • • Covered population/eligibility Enrollment/premium collection Benefit package Costing/financing Macro organization Public, Semi-public, Private non-profit, for-profit Monopoly or competition • Payment/contracting systems Source: Hsiao, 2005 Non-Formal Sector Groups Pose a Serious Challenge on Universality, Equity, and Financing Grounds Income High Employment Status Employed or Retired in Formal Sector - Government - Private Employed in Informal Sector Self-Employed Farmers Unemployed Retired Source: Hsiao, 2005 Middle Low Poor Source: Hsaio Source: Hsaio Source: Hsaio Major Planning Issues (2) • Administrative systems – Eligibility card and enrollment – Premium collection and accounting – Claim card – Monitoring quality and cost – Management information Source: Hsiao, 2005 Administration • Costs of premium collection and targeting • Transparency of its operations and performance • Accountability to regulators and enrollees • Compliance with law when operated by private insurers Source: Hsiao, 2005 The Governance of Social Health Insurance Arrangements – Stewardship or policy/regulatory – Oversight – Institutional Source: World Bank SHI Governance Indicator (1) Stewardship: Who, how and through which regulation are the following defined: • Coverage: • Benefit package • Consumer protection: risk selection, renewability clauses, transferability of rights, complaints and sanctions. • Financing: Contribution rate, co-payments, subsidies • Provision: Provider selection, provider payment mechanism, tariff, provider accreditation and registration, • Prudential: Entry requirements, exit mechanisms, sanctions and appeals, reserves, investment of reserves, external and internal audit requirements. Oversight: Who is responsible and what is the capacity for enforcing the above Source: World Bank SHI Governance Indicator (2) Institutional: What is the Board composition, how defined, how selected, how often rotated and what are the institutional arrangements for the following: • • • • • • • • Oversight body Board of Directors Chief Executive/President/Director General Internal Auditing Unit External Audit Medical Comptroller Management Information System Operational Manual Source: World Bank Principles of SHI Governance Governance of SHI arrangements must follow the following principles: • • • • • Transparency and Rule of Law: Regulatory rules are clear, known to all stakeholders, create an even playing field and limit discretionary actions. Consistency: Predictability of regulation and actions stemming from the regulation (regulations are enforced across time and do not change with every change of government). Accountability and responsiveness: Holding decisions makers accountable and controlling corruption. Inclusiveness, participation and consensus oriented. Rules and regulations are generated openly and with participation of all stakeholders, generating appropriate consensus. The implementation of the rules also allow for appropriate appeals protecting the rights of all stakeholders. Efficiency and effectiveness. This means that the governance arrangements to be established must be enforceable (effective) at a reasonable cost (not impose a heavy burden on the regulated). Source: World Bank Five Key Structural Decisions • Single unified fund or multiple funds? • Separate risk pooling for different population groups? • Benefit package: one tier of several tiers? • Agency to manage SHI: Government (MOH, MOLSS, new agency) or non-profit private organizations? • Assure and improve health services delivery – Will SHI deliver health services directly? – Will SHI act as an active prudent purchaser or simply reimburse? • Competition: among insurance plans? Among providers? • Payment Source: Hsiao, 2005 Determinants of SHI Costs • Services included in benefit package • Coinsurance, deductible, copayment and maximum caps • Expected demand for covered services (by age, sex, income, and region) • Payment methods and level • Expected supply of services • Administrative costs and contingency Rx Source: Hsiao, 2005 Reality Test • Is the contribution rate acceptable to the public and different organized interest groups such as business federation and labor unions? • Can the low-income workers “afford” the contribution rate? • How much subsidy is required for the poor and near poor? • How will this subsidy be financed – general revenue contributions, new earmarked taxes, investment earnings, drawing down reserves, and/or cross subsidization from contributions of other enrollees? • What are the economic impacts? Source: Modified from Hsiao, 2005 Enabling Conditions for Social Health Insurance • A growing economy and level of income able to absorb new contributions • A large payroll contribution base and, thus a small informal sector • Concentrated beneficiary population and increasing urbanization • A competitive economy able to absorb increased effective wages arising from increased contributions • Administrative capacity to manage rather complex insurance funds and issues such as management of reserves, cost containment, contracting and others • Supervisory capacity to overcome some of the market failures such as moral hazard and risk selection as well as other important matters such as governance and sustainability • Political consensus and will There is a Long Road to Universality 100% 80% Thailand 60% Colombia 40% Philippines Kenya Ghana 20% 0% 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 Source: Hsiao, 2005 Major Health Financing Models Model Revenue Source Groups Covered Pooling Organization Care Provision General revenues Entire population Central government Public providers Social Health Insurance Payroll taxes Specific groups Semiautonomous organizations Own, public, or private facilities Communitybased Health Insurance Private voluntary contributions National Health Service Contributing members Non-profit plans NGOs or private facilities Voluntary Health Private voluntary Contributing contributions members Insurance For- and nonprofit insurance organizations Private and public facilities Individual Out-of-Pocket payments to Payments (including public providers user fees) None Public and private facilities (public facilities) What is CBHI? Not-for-profit prepayment plans for health care, with community control and voluntary membership, care generally provided through NGO or private facilities Three common features: 1. Affiliation is based on community membership, and the community is strongly involved in managing the system. – Linked by geographic proximity, same profession, religion, ethnicity, or any “other kind of affiliation that facilitates their cooperation for financial protection” (Jakab and Krishnan 2004). 2. Beneficiaries are excluded from other kinds of health coverage. 3. Members share a set of social values. Community-Based Health Insurance Not-for-profit prepayment plans for health care, with community control and voluntary membership, care generally provided through NGO or private facilities Strengths • • • • • • • Community-run and not-for-profit Membership is voluntary Promotes pre-payment Plays a role in mobilizing additional resources, providing access and financial protection in LICs Risk sharing is usually from the well to the sick If premiums are based on income, there can also be risk sharing from the better off to the poor CBHI can be a helpful complement but is not a substitute for NHS or SHI systems Weaknesses • • • • • • Heterogeneous in terms of populations covered, regulation, and benefits provided Providing access and financial protection are limited due to the small size of most schemes The financial sustainability of most schemes is questionable CBHI schemes generally do not reach the very poor Their impacts on care delivery are quite limited Should be encouraged only where more comprehensive health financing arrangements cannot be implemented on a large scale Major Health Financing Models Model Revenue Source Groups Covered Pooling Organization Care Provision General revenues Entire population Central government Public providers Social Health Insurance Payroll taxes Specific groups Semiautonomous organizations Own, public, or private facilities Communitybased Health Insurance Private voluntary contributions Contributing members Non-profit plans NGOs or private facilities Voluntary Health Insurance Private voluntary contributions National Health Service Individual Out-of-Pocket payments to Payments (including public providers user fees) Contributing members For- and nonprofit insurance organizations None Private and public facilities Public and private facilities (public facilities) What is Voluntary Health Insurance? Financed through private voluntary contributions to for- and nonprofit insurance organizations, care provided in private and public facilities • Voluntary health insurance is defined as any health insurance that is paid for by voluntary contributions. • In reality, most private health insurance markets are voluntary. – Important to identify whether the voluntary scheme is a primary or additional source of health care funding. • Primary functions (OECD 2004): – the main source of health coverage for a population or subpopulation (primary) – coverage of the same services or benefits as the public system (duplicate) (although the providers and timely access to, quality, and amenities of the services may vary) – coverage of cost sharing under the public system (complementary) – coverage of services uncovered by the public system (supplementary) Voluntary Health Insurance Financed through private voluntary contributions to for- and non-profit insurance organizations, care provided in private and public facilities Weaknesses Strengths • • • As a prepayment and risk pooling mechanism is generally preferable to out of pocket expenditure May increase financial protection and access to health services for those able to pay When an “active purchasing” function is present it may also encourage better quality and costefficiency of health care providers • • • • • Associated with high administrative costs Not effective in reducing cost pressures on public health financing systems May be inequitable without public intervention either to subsidize premiums or regulate insurance content and price Has the potential to divert resources and support from mandated health financing mechanisms Applicability in LICs and MICs requires well developed financial markets and strong regulatory capacity Major Health Financing Models Model Revenue Source Groups Covered Pooling Organization Care Provision General revenues Entire population Central government Public providers Social Health Insurance Payroll taxes Specific groups Semiautonomous organizations Own, public, or private facilities Communitybased Health Insurance Private voluntary contributions Contributing members Non-profit plans NGOs or private facilities Voluntary Health Private voluntary Contributing contributions members Insurance For- and nonprofit insurance organizations Private and public facilities National Health Service Out-of-Pocket Payments (including public user fees) Individual payments to providers N/A None Public and private facilities (public facilities) User Fees are Only a Small Share of Total Consumer Payments Fees for publicly provided services Evidence on User Fees is Mixed Fees for publicly provided services Strengths – Generate additional revenue with which to improve health care quality – Increase demand for services owing to the improvement in quality – May reduce out-of-pocket and other costs, even for the poor, by substituting public services sold at relatively modest fees for higher-priced and less accessible private services – Promote more efficient consumption patterns by reducing spurious demand and encouraging the use of cost-effective health services – Encourage patients to exert their right to obtain good quality services and make health workers more accountable to patients – When combined with a system of waivers and exemptions, serve as an instrument to target public subsidies to the poor and to reduce the leakage of subsidies to the non-poor Weaknesses – Are rarely used to achieve significant improvements in quality of care, either because their revenue generating potential is marginal or because fee revenue is not used to finance quality gains – Do not curtail spurious demand because in poor countries there is a lack, not an excess, of demand – Fail to promote cost-effective demand patterns because the government health system fails to make costeffective services available to users – Hurt access by the poor, and thus harm equity, because appropriate waivers and exemption systems are seldom implemented; where they are, the poor get discriminated against with lower quality treatment Aid Effectiveness and Absorptive Capacity Aid Effectiveness Issues ODA is Rising But is Far Short of What is Needed to Meet MDG (0.54) and Monterrey Commitments (0.70) To meet 2010 commitments (ODA of US$130 billion per year), need an average increase of about 8% per year Source: OECD DAC database. Much of the Increase in Aid is Not Directed to Financing the Incremental Costs of Meeting the MDGs 80 % of net ODA 70 60 50 40 30 20 10 0 1980 1990 Debt Forgiveness Grants Administrative Costs Emergency and Food Aid 2000 Technical Cooperation Program and Project Aid Source: Sundberg and Gelb 2006. In 2005, ODA peaked at US$ 106.5 billion -- most of this increase was due to debt relief and exceptional mobilization in response to the Tsunami and the Kashmir earthquake ODA is the Main Source of External Finance for SSA, Twice as Large as FDI and Nearly Four Times the as Large as Remittances Total long-term flows of $41 billion in 2003 Total long-term flows of $340 billion in 2003 Source: World Bank. Global Monitoring Report. 2005. Donor Aid for Health has Increased Significantly 16 14 US$ billions 12 Private non-profit 10 Other multilaterals Development banks 8 UN agencies Bilateral agencies 6 4 2 0 2000 2005 year Source: Michaud 2007 Where Does All the Aid Go? On average, for every $1 disbursed by donors to our 14 case study countries, we estimate: •Not recorded in balance of payment •Recorded in BOP but not in Govt spending •Aid earmarked to specific projects •Budget support $0.30 $0.20 $0.30 $0.20 •1990s structural adjustment provided a larger share of aid as general budget resources. Aid Effectiveness • Aid has diminishing returns • There are limits to country ‘absorptive capacity’ • Aid is fungible overall (can offset budget contributions) and among sectors • Aid achieves better results in good policy environments • Aid requires ownership by countries (e.g., donor imposed conditionalities rarely work) • Aid is related to increased investments and growth • Debt repayments have a negative impact on economic growth • Aid has high transaction costs for countries • Aid makes governments accountable to donors as opposed to their citizens • Aid in the form of grants instead of loans may reduce domestic resource mobilization efforts Basic Problems in Current ODA System • Lack of global governance and policy coherence • Lack of predictability of funding and large differences between donor commitments and disbursements at the country level generate problems of macroeconomic management and planning • There is a growing concern about the ‘verticalization’ of aid and the need to focus holistically on health systems as opposed to specific diseases or interventions • Large numbers of new actors and donors and the plethora of ‘new’ aid instruments (e.g., SWaps, PRSPs, PRSCs, PRGFs, MTEFs, etc.) create problems of management and coordination at both the global and country levels and generate transactions costs and absorptive capacity constraints • Lack of responsiveness and flexibility of aid to sudden problems and crises • Little accountability of donors for the absence of results and lack of M&E systems which are needed to ensure that the additional resources are being used as prioritized and achieving results • A significant portion of aid is off-budget and often doesn’t even enter into the balance of payments or the government’s budget • Countries need to create ‘fiscal space’ to absorb these large increases in external assistance, a potentially problematic situation given IMF fiscal ceiling Donor Commitments for Health are Volatile and Unpredictable Try managing this… Absorptive Capacity Constraints Donor Collaboration is a Challenge GTZ WHO CIDA UNAIDS RNE INT NGO 3/5 UNICEF Norad WB Sida USAID T-MAP MOF UNTG CF DAC GFCCP PRSP PEPFAR GFATM HSSP MOH PMO MOEC SWAP CCM CTU NCTP CCAIDS NACP LOCALGVT CIVIL SOCIETY PRIVATE SECTOR Source: WHO: Mbewe Bilateral Donor Support to Tanzania, 2000-2002 Source: Foreign Policy, Ranking the Rich 2004 Vertical Aid Distorts Priorities Community Management Case management Drug Use HIV/AIDS Nutrition Skilled birth attendance New born care Malaria PMTCT Health system Source: WHO, Mbewe Maternal health Safe and Supportive Environment Fragmentation in international effort …. Absorptive Capacity Constraints are Multi-Dimensional Macro Macro National Government Fiscal instruments/allocative mechanisms Service delivery/ local government Institutional Debt sustainability. Monetary and fiscal policy instruments. Competitiveness, Dutch disease. Exchange rate management. Physical and human Social/cultural/political Administrative, Stable national political management, and planning institutions, power-sharing skills, trained technicians, mechanisms, social stability. sector specialists. PEM (budget Sector management skills. Cultural norms, weak institutions, preparation/execution, power sharing mechanisms accounting, treasury, audit, etc.) Connectivity and communications networks. Administrative capacity. Legal framework. Local government institutions, private sector capacity. Road accessibility, water control, geography. Local government skills and capacity. Cultural norms, ethnic, caste, class, relations. Local power structures. Constraints to Improving Access to Health Interventions Constraints to Improving Access to Health Interventions Level of Constraint I. Community and Household Level Type of Constraint Lack of demand for effective interventions Amenability of Additional Funds to Reduce Constraints High High Barriers to use of effective interventions (physical, financial, social) II. Health Services Delivery Level Shortage and distribution of appropriately qualified staff High Weak technical guidance, program management and supervision High Inadequate drugs and medical supplies High High Lack of equipment and infrastructure, including poor accessibility of health services III. Health Sector Policy and Strategic Management Level Low Weak and overly centralized systems for planning and management Weak drug policies and supply system Medium Inadequate regulation of pharmaceutical and private sectors and improper industry practices Medium Lack of intersectoral action and partnership for health between government and civil society Low Low Weak incentives to use inputs efficiently and respond to user needs and preferences IV. Public Policies Cutting Across Sectors V. Contextual and Environmental Characteristics Reliance on donor funding that reduces flexibility and ownership Low Donor practices that damage country policies Low Government bureaucracy (civil service rules and remuneration; centralized management system; civil service reforms) Low Poor availability of communication and transport infrastructure High Governance and overall policy framework Low Corruption, weak government, weak rule of law and enforceability of contracts Political instability and insecurity Low priority attached to social sectors Weak structures for public accountability Lack of free press Physical environment Climatic and geographic predisposition to disease Physical environment unfavorable to service delivery Source: Olivera et al 2001 Low The Face of the HRH Crisis RECRUITMENT ATTRITION Pre-service training -Clinical vs Managerial -Specialist vs polyvalent -Death -Professional vs volunteer -Braindrain: loss vs gain -Pension Social Franchising DISTRIBUTION -Geo: rural vs urban RETENTION -Monetary: salary vs allowances -Level: central vs service delivery -Secondary: housing, transport, communication, electrification, child education, training opportunities etc. -Sector: public vs private -HR management -Type: key-staff vs others What Donors and Countries Need to Do What is Needed? • • • • • • • • A “Needs Assessment” which identifies systemic constraints and implementation bottlenecks for the delivery of essential services and the required process to address them; Capacity development plans linked to policy and institutional needs including assessing complementarities with other sectors, analyzing the role of non-state partners (NGOs, civil society, and the private sector), and integrating national health systems with global programs; Improve the interface between MOF and MOH as co-leaders working with other relevant ministries; Ensure consistency between health sector development plans, SWAps, the overall budget including cross-sectoral trade-offs and the macroeconomic framework, in consultation with the IMF; Apply the Paris Principles of aid effectiveness to the health sector in country-specific circumstances including harmonization and alignment behind government strategies and processes, managing for results, and mutual accountability; Better align donor and country perspectives through better global governance/policy coherence, providing increased aid through general budget support, and countries improving their PSM; Strengthen systems of management for results, including monitoring and evaluation, appropriate indicators, and mutual accountability; and, Determine major financing gaps and potential additional funding resources, eventually adjusting the plans to available resources and capacity to deliver. What Will Donors Have to Do? • Improve global governance and policy coherence through donors reconciling their foreign policy goals and aid modalities with country needs • Harmonize procedures (procurement, financial mgt, monitoring & reporting) in order to improve impacts and reduce donor and country transactions costs • Provide increased and predictable long term financing • Finance recurrent costs • Assess effectiveness and appropriateness of new financing instruments • Offer consistent policy advice • Focus on achieving results • Submit to common assessment of their own performance and being accountable What Does This Mean for Countries? • Develop credible strategies and plans to foster economic growth, deal with implementation bottlenecks, and reach MDGs as part of PRSPs, SWAPs, MTEFs, and public expenditure programs • Improve governance including giving voice to communities, consumers and openness to NGOs and private sector • Enhance absorptive capacity through decentralization, efficient targeting mechanisms, and institutional reforms including having a clear fiduciary architecture and open reporting of results • Improve equity and efficiency of current public spending and enhance resource mobilization efforts • Develop financing, management, and regulatory mechanisms for equitable and effective pooling of insurable health risks as a necessary concomitant to MDG and CMH intervention choices. • Integrate vertical programs into a well functioning health system to maximize health-specific and cross-sectoral outcomes and reduce transactions costs • Monitor and evaluate results A Shared Global Approach • Build on existing funding modalities • Use and further improve existing plans and mechanisms at the country level • Address inequities within countries • Scale up cost-effective interventions • Tackle critical implementation constraints • Apply a multi-sectoral approach • Focus on results • Country orientation, but global action is also needed Implementation Issues Policy Questions (1) To what extent will the reform increase insurance coverage? What would be the effect on taxes, premiums, and public subsidies? What would be the effect on public and private insurers, employers, and households? How much choice will consumers have regarding insurer and provider? To what extent would the scope and depth of covered benefits change? Policy Questions (2) What would be the effect on employment? What would be the effect on the level and rate of growth of aggregate health spending? What would be the effect on health outcomes? What would be the effect on the delivery system? What would be the effect on financial and physical access to care? What would be the effect on quality of care? What would be the effect on equity, poverty reduction, and financial protection? Global Policy Scenarios • An accurate picture of the current health system (i.e., the baseline or base case) is needed including data on health spending, insurance coverage, and availability and use of services. • Projections of the future health system assuming no changes are needed so that policy-makers can understand the need for reform and its design aspects. • Projections of the future system after the reform are needed so that policy-makers and the public can understand the likely effects of the reform. Informational Needs • Need to analyze reform proposal impacts on insurance coverage rates, health expenditures, and financing sources • Need information on the costs -- ‘premiums’ -- to cover different groups • Need information on: current distribution of HI coverage, health status and socio-economic characteristics of those covered and not covered, and information on health expenditures and current sources of payment Data Needs for Assessing Reform Proposal Impacts Epidemiology Households Outcomes Providers Utilization Insurers Employers Expenditures Determining ‘Premium’ Levels • Socio-economic and epidemiological status of individuals • Benefit package • Current service use • Demand effects/behavioral response to lower out-of-pocket costs • Supply side response (usual assumption of infinite elasticity) • Cost containment policies Implementation Issues for Health Insurance Systems • • • • • • • • • Issues in establishment of funds Defining the benefit package Determining eligible groups Estimating actuarially sound premium levels Determining financing sources Defining revenue collection mechanisms Developing administrative systems Defining transition steps to new system Developing and implementing monitoring and evaluation procedures Challenges and Lessons LIC Policy Challenges • What is the role of the public sector in health financing? • How can sufficient revenues be raised to afford a basic package of essential services? • What can the Government do to provide financial protection against the impoverishing effects of catastrophic illness costs -- Is pooling of resources possible? • What is the role of user fees – Should existing user fees be abolished? LIC Policy Challenges (2) • Are annual health plans and budgets couched in a results-based framework with appropriate M&E indicators? • How can countries assure harmonization of donor procedures and alignment with national priorities and processes? • How can absorptive capacity be improved? • What are the most effective methods for creating fiscal space, dealing with cross-sectoral and macroeconomic tradeoffs, and aligning health policies with PRSPs and MTEFs? LIC Policy Realities (1) • Countries are behind with respect to the MDG goals -progress requires more aid and budget support in aiddependent countries. • Most countries focus on a "health services strategy", not a multi-sector "health strategy". • Broad agreement exists on health priorities. • Accountability for results is not always supported by control of the resources necessary to achieve them. • Cost estimates should address institutional constraints and be prepared in a form that can be mapped to budgets and support resource bids. • Strategies need explicit analysis of links between costs, outputs and outcomes LIC Policy Realities (2) • Fiscal constraints are binding, particularly in lowincome countries. • Tax revenue is hard to raise; external aid has not risen to required / expected levels. • Fiscal sustainability for health implies working on all fronts of the fiscal deficit – increasing tax revenue, donor grants, debt relief, and reallocating across sectors. • Policies, institutions, and capacity are important. • Public health expenditure needs to be well- targeted and allocated to high impact interventions proven to work. LIC Policy Realities (3) • Minimum standards of public expenditure management need to be attained before any health strategy can be effective. • In good practice cases, the PRSP identifies spending priorities in consultation with sectors, MTEF/budget process shifts resources towards them, reviews and adjusts each year in light of performance. • Capacity problems can be managed if bottlenecks are tackled in a logical sequence, avoiding large "earmarked" commitments that distort priorities. LIC Policy Realities (4) • All donors should join in sector coordination and provide commitment and disbursement data in the same format Govt requires. • Where Govt has a sound strategy, the first call on donor funds should be to fully fund it. • Donors need to commit early enough to inform budget preparation. • Countries need to coordinate macro- & sector-level policy dialogue, & rely on sector reviews to review & monitor sector-level actions. Challenges in Middle-Income Countries • Achieve universal coverage • Improve financial protection • Increase health system efficiency In the context of: • • • • High out-of-pocket payments Limited revenue-raising capacity Fragmented financing systems Inefficient purchasing arrangements Many Reform Options • NHS, SHI, private/voluntary health insurance – Some combination of these • Lessons learned from other countries • Form of insurance schemes less important than overall goals Policy Recommendations (1) To improve revenue collection, risk pooling, and service purchasing: • Develop efficient and equitable revenue collection – Finance health with domestic revenues and funding sources – Structural reform for payroll collection, tax system • Increase risk pooling – Pool 40% of health spending that is OOP – Integrate informal sector workers into coverage schemes – Consolidate risk pools Policy Recommendations (2) • Design appropriate benefit package – Balance breadth and depth • Spend wisely to expand coverage – Consider incentive-based payment mechanisms and service purchasing reform • Improve services and coverage for very poor and vulnerable Success Stories (1) • Universal coverage: Korea and Taiwan – Legislation created social health insurance (Korea: 1989; Taiwan: 1995) – Aided by economic growth (Korea) and strong political incentive (Taiwan) – Expansion of small social security schemes – Timeline: 10 years + – Current coverage: >90% of populations in both countries • Reducing fragmentation: Colombia – Legislation mandated private sector participation in SHI (1993) – Universal coverage for entire population – Risk selection problems: major restructuring needed to resolve perverse incentives – Current coverage: ~62% of population Success Stories (2) • Financing, purchasing, payment, and quality: Estonia and Slovenia – Estonia • • • • National health insurance (1991) financed with 13% wage tax Aided by institutional capacity and government commitment Risk pool consolidation Reforms in provider and hospital payment, service contracting – Slovenia • National health insurance (1993) financed with 13.25% payroll tax • Aided by institutional, managerial, and administrative capacity; impending EU status; stakeholder buy-in • Supplementary voluntary insurance to cover co-payments • Health information system reform • Quality of care improvement through standard of care guidelines Financing Health in High-Income Countries From community-based voluntary insurance ↓ Formal public insurance funds ↓ Social or national health insurance systems • 13 of 25 HICs use general revenue-based approaches, 9 have SHI, 3 mixed approaches • Aided by political will and economic growth • Reforms focus on efficiency gains The Road to Universal Coverage: Lessons Learned • Economic growth most important factor • Strong political commitment, management and administrative capacity also critical • Voluntary and community-based financing help build public confidence in prepaid schemes • Pool risk as coverage expands: the critical issue is risk pooling, whether SHI or NHS is ultimately chosen is of secondary importance • Evaluate at each stage Conclusion: Financing Challenges • There is no one ‘right’ financing model. • System financing must be sustainable --meaning that future economic growth generates sufficient levels of income for decent living standards and external debt solvency. • LICs face difficult tradeoffs between financing essential services and providing financial risk protection -- prioritization is critical. • For low income countries receiving large amounts of external assistance, there are serious questions of absorptive capacity as well as their ability to finance from domestic resources both future recurrent costs directly financed by time-limited grants as well as current and future recurrent costs generated by externally funded investments. • Most MICs are challenged to provide universal coverage, reduce fragmentation among risk pools, and improve purchasing efficiency. • The critical issue is risk pooling, whether SHI or NHS is ultimately chosen is really of secondary importance. • The critical condition regarding the speed of evolution to universal coverage is the level of income and its rate of growth. Evidence also suggests that the ability to administrate is a key enabling factor for success. • Models need to be tailored to individual country circumstances. Financing Issues in Thailand • Is the revenue base equitable and efficient? • Are the BBPs well-designed from allocative efficiency and equity (net incidence) perspectives? • Are risks pooled equitable and efficiently? • Are the current schemes financially sustainable? • If not, how would you reform the revenue bases? • What changes are needed to harmonize the schemes? • What information is lacking?