Healthcare financing reform: Switching from social

health insurance to NHS and back? Case of Latvia

1st of December 2016 Dr.oec. K.Ketners

Healthcare financing reform

• Health Financing Law Draft (2013)

• Health Financing Models (2016)

New reform model

• General tax financing (2004)

• Creation of NHS (2011)

Reform of financing system from earmarked revenues to general taxes

• Creation of regional sickness fund (1993)

• Creation of centralised sickness insurance fund (1998 – 2002)

Decentralised system in early 1990

Financing funds available

Source Central Statistical Bureau of Latvia

Financing funds available

Source Central Statistical Bureau of Latvia

Healthcare financing model – preconditions from MoH(2016)

• Service Package - – Ensure a range of services and

regional access; – Ensure access for all, without

amending fragmentation.

• Single Pool - State Agency • Financial protection and

financial equality - to reduce the risk of a financial difficulty, worsening health condition. Equal access to services

Services

Purchaser

Financial Protection

Discussion on possible sources of revenues from 2018

Healthcare financing model – preconditions from MoH(2016) - Sustainable health care system development to

improve access to health care services at all levels.

Strategic purchasing

Governance and e-health system

Financing model

Increase of funding

• Budget funds at 1300 EUR / cap. minimize mortality; • The large financial deficit shows that exaggerated funding at some

stage is not a credible, can focus on the bottlenecks; • Targeted investments in 2017 before the overall reform also possible

solution

MoH proposals for financing

• There is no significant impact on financing from municipalities since – spending are ≈ 50-60 €/per capita (2016); in 2023 ≈ 100-120 €/per capita;

Increase of system efficiency

Governance of healthcare system

Institutional reforms and NHS E-health

Single purchaser – Strategic purchasing and pooling

Demand v. needs Supply - possibilities

Financial protection, equity

Universal health insurance for residents Reporting system, avoiding double examinations

MoH proposal – Universal Health Insurance Model

II model – Mandatory Health Insurance

III model – Health Insurance Combined Compulsory Insurance model

State Budget Earmarked Health Tax

Patients

Single Purchaser

Health Care Providers VHI –

supplementary and

complimentary

Basic Package Additional Package for Taxpayer

Next challenges – Sources of financing

• Minimum/ possible financing for system. • Impossible without additional burden – tax burden or premium

burden.

Personal income tax

Opportunities Risks •Broad tax base •Can be earmarked revenue •Risk equalization

•Potential distortions of competition and tax compliance •Tax would mean greater income inequality and increase tax burden on labour. •Fulfilment of tax obligations (compliance issues)

Tax 2018.g. 2019.g. 1pp increase in tax rate ensures revenues as

M€ 70,3 74,1

Options Risks •Broad tax base •Simplicity

•Potential tax distortions. VAT increase will result in price increases (inflation) and reduction in household consumption, thus hindering economic development; •increase the tax burden for people with lower incomes. •Tax compliance risk •Generally regressive type of tax •Budget negotiations

Tax (VAT) 2018.g. 2019.g. 1pp increase in tax rate ensures revenues as

M€ 85,0 90,6

Indirect taxes

Social health contributions Options Risks

•Broad tax base •Could be earmarked (special budget) •Withholding tax •Independent governance •Risk Equalization

•Potential distortions (taxable are active incomes - “payroll” tax) •Tax compliance; • Inequality; • Increase of tax burden; • Economic cycle dependency •Compensation for excluded groups

Payment M€ 2018.g. 2019.g.

SSI rate change for E-er(23,59%) per 0,5 pp

Total incl., 40,1 42,5 SSI 42,7 45,2 CIT - 2,6 - 2,7

SSI rate change for E-ee (10,5%) per 0,5 pp

Total incl., 33,9 35,8 SSI 42,7 45,2 PIT - 8,8 - 9,4

Main Challenges • Develop a medium-term budget framework for

securing a stable revenue flow for the health sector; • Allocate at least 12% of general government revenues

to health, which is still below EU average; • Continue to improve efficiency of the service

delivery system by fully implementing the recently introduced structural reforms;

• Reduce waiting times and improve access to services to make the new system more attractive for the population and increase willingness to pay their contributions.

Thank You!