Evaluation of Health Care Financing

Dr. Kyaw Swa MyaLecturer/Head

Environmental Health DepartmentUniversity of Community Health

KSM, UOCH 2

Outline of Presentation

• Why health care financing?• Overview of health care financing• Evolution of health care financing at various

stages of economic development• Criteria for evaluation of health care financing

KSM, UOCH 3

Why is health care financing an important subject?

• Health care is a basic necessity• Many poor cannot afford illness cost• Medical cost for treating serious illness are

beyond the financial means of most households

• Many households face bankruptcy when serious illness strikes

KSM, UOCH 4

Philosophical Reason

• Egalitarian philosophies – emphasizes equity, particularly equal access to health care and views health care as fundamental necessity for human well being

• Utilitarian philosophies – views health in the context of how health contributes to a nation’s welfare

KSM, UOCH 5

Policy Reason

• The amount of financial resources mobilized for health care and how they are used depend on health care financing policy

• Financing is the principle instrument with which to determine resource flows, distribution of resources, and incentive structures for health providers

KSM, UOCH 6

Policy Reason

• Unless a nation has a rational and integrated financing policy, the health care costs of elderly, disabled, and less healthy persons are left for the government to finance and the cost become a heavy financial burden on the treasury

• Determine who will have access to basic health care, what services are offered, and their quality

KSM, UOCH 7

Market Failure Reason

• The distribution of health risks are highly skewed and it caused two serious market failures in private insurance market

• Adverse selection – high risk individual more likely to purchase insurance

• Risk selection – insurers exclude high risk individuals and only insure healthier persons for maximum profit

KSM, UOCH 8

Macro-environmental Reason

• Economic changes – reduction of government spending in public sector

• Demographic changes – significant increase in the population as a whole and of those over age 60

• Epidemiological changes – double burden? Triple burden?

• Political changes – increased demand and government supply

KSM, UOCH 9

Six Building Blocks of a Health System

Source: Strengthening Health Systems to Improve Health Outcomes, WHO’s Framework for Action – WHO 2007

Purposeful change aimed at improving health system performance for:

System Inputs

KSM, UOCH 10

Overview of HCF

KSM, UOCH 11

HCF policy goals (WHO report, 2000)

• Financial protection• Equity in finance• Equity of access• Transparency and accountability• Quality care and efficient service delivery• Administrative efficiency

KSM, UOCH 12

Three basic principles for HCF

• Principle 1 – Raise enough revenues to provide individuals with a basic package of essential services and financial protection against catastrophic medical expenses caused by illness and injury in an equitable, efficient, and sustainable manner

• Principle 2 – Manage these revenues to pool health risks equitably and efficiently

• Principle 3 – Ensure the purchase of health services in ways that are allocatively and technically efficient

KSM, UOCH 13

Functions of HCF

• Revenue collection• Polling resource• Purchasing services

KSM, UOCH 14

Methods of HCF

• Government revenue e.g. general tax, inflation, earmarked tax

• Social and private insurance• User fees (OOPs)• Community financing

KSM, UOCH 15

Exchange Model

• Bilateral exchange model for goods

Consumers Providers

Service

Money

KSM, UOCH 16

Exchange Model

• Trilateral Exchange Model for Goods

Consumers Providers

FinancingOrganization

Treasury

Premiums

Payments

Services

User’s fee

Taxes

Evolution of Health Care Financing at

Various Stages of Economic Development

KSM, UOCH 18

Stage I (three tired system) Stage II Stage III

Methods Poor Low Segmented finance (Universal coverage)

< $ 1,800 1,800 – 4,800 $ 5,000 – 12,000 $ > 12,000 $

General revenue +

donor

Public health, prevention

Public health services Public health services NHS (UK, N.Z.)

(clinics, hospitals) Medisave, Singapore

(50-60%) (40-50%) (20-40%)

Social insurance

For civil servant

NHI (Canada)

(10-20%) (30-60%) Bismarckian

Private insurance

Negligible (5-10%) (15-40%) Medicare (USA)

Private hospitals & clinics

Self pay (OOPs)

Pharmacists Self pay Self pay

Indigenous providers

(35-45%) (20-40%) (15-25%) (15-25%)

Bangladash Philippines Thailand USA, Singapore

India Indonesia Malaysia Canada

KSM, UOCH 19

Criteria for Evaluation of HCF

• Equity – in financing - in provision of health care

• Efficiency – in financing - in provision of health care• Other criteria – quality, sustainability, risk pooling

KSM, UOCH 20

Definition of Health Equity• The International Society for Equity in Health

(ISEqH) defined equity in health as “the absence of systematic and potentially

remediable differences in one or more aspects of health across populations or population subgroups defined socially, economically, demographically, or geographically”

KSM, UOCH 21

Difference of inequity and inequality

KSM, UOCH 22

Determinants of Health Inqualities1. Natural, biological variation2. Differential health-damaging behavior that is freely chosen3. Differential health-promoting behavior that is

freely chosen4. Differential health-damaging or health-promoting

behavior, where choices are restricted5. Differential exposure to unhealthy, stressful

conditions (home, work, etc…)6. Inadequate access to basic social and essential

health services7. Health-related social mobility

Generally perceived as unavoidable or fair

Generally perceived as avoidable or unfair

KSM, UOCH 23

Vertical and horizontal equity• Horizontal equity applies to people in the same

status or situation, and people who are alike should be treated in the same fashion, – in other words, equal treatment for equal need

• Vertical equity focuses on the difference between individuals or groups of people, and people who are unlike in relevant respects (e.g. income, health needs), and states that the differences should be treated differently in a just way

KSM, UOCH 24

How to measure equity?

• Lorenz curve• Gini coefficient• Kakwani index• Concentration index

KSM, UOCH 25

Lorenz Curve

• Lorenz curve is a graphical representation of the proportionality of a distribution (the cumulative percentage of the values). It was developed by Max O. Lorenz in 1905 for representing income distribution

KSM, UOCH 26

Lorenz Curve

KSM, UOCH 27

Gini Coefficient

Note: Gini Coefficient is a tool for measuring inequality of income. The value of Gini coefficient ranges from 0 to 1. A low Gini coefficient indicates more equal income or wealth distribution, while a high Gini coefficient demonstrates more unequal distribution.

KSM, UOCH 28

Gini Coefficient

KSM, UOCH 29

The Kakwani index• Is defined as twice the area between the

concentration curve of health payment and the Lorenz curve of household income

• The value of the Kakwani index ranges from -2 to 1

• A negative Kakwani index value indicates the regressive nature of health care payments

• In contrast, a positive value indicates the progressive nature of health care payments

KSM, UOCH 30

The Concentration Curve and Index

• The concentration curve graphs on the x-axis the cumulative percentage of the sample ranked by living standards, beginning with the poorest, and on the y-axis the cumulative percentage of the health service use corresponding to each cumulative percentage of the distribution of the living standard variable

• The concentration index is a means of quantifying the

degree of income-related inequality within a specific health variable, for example, health service use, and government health subsidies

KSM, UOCH 31

The concentration index• is defined as twice the area between the

concentration curve and the line of equality (the 45-degree line running from the bottom-left corner to the top-right)

• In the case where there is no income-related inequality, the concentration index is zero

• The index takes a negative value when the concentration curve lies above the 45-degree line of equality, indicating disproportionate concentration of health service use or other health variables among the poor, and a positive value when it lies below the 45-degree line of equality

Equity in Health Care Financing

Kakawani Index

KSM, UOCH 33

Concentration curve for health payment and lorenz curve for health expenditure, Egypt 1997

KSM, UOCH 34

Concentration curve for health payment and lorenz curve for health expenditure, Egypt 1997

KSM, UOCH 35

Progressive & Regressive result of previous figure

• Kakawani index (direct tax) = 0.2501• Kakawani index (indirect tax) = 0.1435• Kakawani index (social insurance) = - 0.0532• Kakawani index (OOPs) = 0.0644

KSM, UOCH 36

Trends of Kakawani indices of HCF Methods in Thailand (1986 – 1998)

0.2479 0.25450.2309

0.29110.2546 0.2372 0.2269

-0.2273-0.1911 -0.1787 -0.1635

-0.2406

-0.1322-0.1019

-0.064-0.0362

-0.0667-0.0972 -0.108

-0.3176

-0.2327 -0.2317 -0.238

-0.1507

-0.2515-0.2044

-0.254

-0.2227

-0.4

-0.3

-0.2

-0.1

0

0.1

0.2

0.3

0.4

1986-1988-1990-1992-1994-1996-1998

Direct indirect Both direct & indirect OOPs

KSM, UOCH 37

Progressivity of HCF

Equity in Provision of Health Care

Concentration Index

KSM, UOCH 39

Selected concentration curves of ambulatory service use among different types of health facilities in 2003

KSM, UOCH 40

Selected concentration curves of ambulatory service use among different types of health facilities in 2003

KSM, UOCH 41

Selected concentration curves of ambulatory service use among different types of health facilities in 2003

KSM, UOCH 42

Selected concentration curves of ambulatory service use among different types of health facilities in 2003

KSM, UOCH 43

Concentration curve for health sector subsidies and lorenz curve of household consumption,

Egypt 1997

KSM, UOCH 44

Regressive result of previous figure

• Kakawani index (inpatient) = - 0.1785• Kakawani index (outpatient) = - 0.1069• Kakawani index (health centre) = - 0.4797• Kakawani index (total subsidy) = - 0.2124

Efficiency in Health Care Financing and Provision of Health

KSM, UOCH 46

Efficiency Measures Overview

1. Perspective

2. Output

3. Type of Efficiency

Function of Health system esp in Health Care Financing

Revenue collection, risk pooling, purchasing

Allocative,Technical/ Productive and

Social Efficiency

It is organized in three tiers

KSM, UOCH 47

Efficiency OverviewSociety

Providers PurchasersHealth Plans

Health Care Financing

Individuals

Revenue collection, Risk pooling Purchasing

Technical Productive Social

Per

spec

tive

Out

put

Typ

e

KSM, UOCH 48

Allocative Efficiency

A firm achieves technical efficiency when it cannot produce the same output with any fewer inputs

KSM, UOCH 49

Technical/Productive Efficiency

A firm achieves productive efficiency when it cannot produce the same output at a lower

cost

KSM, UOCH 50

Social efficiency

• Social efficiency is more often the focus for society than for firms and mainly consider for social inclusion

• No person can be better off without making somebody worse off (Pareto optimality)

KSM, UOCH 51

Public Finance Challenge

Environmental sanitation

Family Planning

Vector control

Maternal and Child Health

OP hospital referrals

Health center OP curative

OP hospital self-referrals

2nd class IP care

VIP IP care

Kidney dialysis

Open heart surgery

Cosmetic surgery

Water supply

Pure Public Goods

Pure Private Goods

Curative

Preventive

Government policy dictates most resources flow here

Actual funding ends up here

RichPoor

KSM, UOCH 52

Public / private collaboration in curative service delivery

SHI -

public/private provision

Financing: Filling the gapsFinancing: Filling the gaps

Pure Public Goods

Pure Private Goods

Curative

Preventive

Self-financing Pre-pmt Schemes

The richThe poor

Pure private provision + service contracts

Public provision & finance

Subsidized pre-pmt Schemes

KSM, UOCH 53

References• Andres Vork et. al, 2010. Income related inequality in

health care financing and utilization in Estonia since 2000. WHO health financing paper 2010/3

• Innovative Medicine South Africa, 2009. National health insurance Background brief: Understanding Health Care Financing

• Mara Brain, 2008. Public Health Care: Reform and financing, A big picture

• Owen O’donnel et. al, 2008. Analyzing health equity by using household survey data: A guide to techniques and their implimentations

KSM, UOCH 54

References (Contd)• Pablo Gottret & George Schieber, 2006. Health

financing revisited: A practitioner’s guide• Supasit Pannarunothai and Direk Patmasiriwat, 2000.

Equity-directed health care reform in Thailand: The use of macroeconomic indices

• The alliance, 2006. Efficiency in Health Care: What does it mean? How is it measured? How can it be used for valued based purchasing?

• WHO, 2007. Strengthening Health System to improve Health Outcomes: WHO’s framework for action

• William Hsiao, 2000. Health care financing in developing nations

KSM, UOCH 55