Funding Healthcare Flashcards
Capitation payments
A prospective means of paying health care staff based on the number of people they provide care for.
Co payments
Direct payments made by users of health services as a contribution to their cost (e.g. prescription charges).
Fee for service
A means of paying health care staff on the basis of the actual items of care provided.
Technical efficiency
Using only the minimum necessary resources to finance, purchase and deliver a particular activity or set of activities (i.e. avoiding waste).
Why are meaningful comparisons of how much a country spends on health care sodifficult?
First, it is not clear what should be included. There is no clear line between health andspending on other types of social care. Second, exchange rates may not reflect the valueof money in terms of services provided and the fact that drug prices tend to be in USdollars causes further distortions. For example, although only US$19 is spent per capitain Indonesia, one dollar will buy more physician time than it will in France or Canada.
Fundamentally, financing of health services should ensure:
- that all people who need care have access to health services (equity)
- that services are provided in a way that provides best value for money (efficiency).
Any funding system should:
- be acceptable to the population covered
- make clear the mechanisms of funding and the associated entitlements
- be adequate
- be sustainable
- spend as little as possible on collecting funds
- be congruent with health care priorities, such as achieving social equity.
Sources of finance
- those based on solidarity (mutual support). The main solidarity systems are social health insurance and taxation. In both cases the principle is that contributions are made on the basis of ability to pay (somehow defined) and access to care is based on need (also somehow defined).
- those where actual or expected payments are based on use of services. The three main sources of funds not dependent on solidarity are actuarial or private insurance, medical savings accounts and direct payment by individual patients.
Tax and social insurance
It is sometimes argued that there is little difference between funding from tax and social insurance – in both cases people make compulsory income-related contributions and gain access to care on the basis of need. In some countries social insurance is operated like a tax and is under the control of government. Some tax systems started as social insurance but the distinction between compulsory contributions and taxes gradually disappeared. In other countries the social insurance fund (or funds) operates with a high degree of independence from government and effectively turns every patient into a private patient. The most common base for tax or social insurance is income from employment. Where most incomes are derived from employment this may be a good proxy for total income. However, both now and even more so in the future, there are reasons to be concerned about how well this will reflect ability to pay. The proportion of people in long term employment with large employers is low in middle income and poor countries, and is falling in most countries. More people are employed in small organizations, more are self-employed, more are working on contract, and more are on pensions and other non-employment income. Widening disparities of wealth make employment income a poor proxy for ability to pay. Other disadvantages of social insurance are that it is expensive to assess wealth whereas salaries and wages are easy to calculate and assess, and a sudden increase in the level of unemployment will lead to a concomitant fall in funds available for health care.
Actuarial or private insurance
Actuarial insurance assesses the risk of a person needing treatment and charges a premium based on this risk. Given the distribution of risk in the population, this means that the actuarially fair premium is higher for older, poorer and visibly less well people. In practice, assessing risk is expensive and so insurance companies normally do not calculate risk for each individual but determine the premium on the basis of sociodemographic characteristics and self-reported health status. The process can be jeopardized by governments which prevent some information being collected
Insurance works well to share risk when events and outcomes for individuals are genuinely unknown. Contracts could in principle be taken out early in life, before any information on risk were known, and these life-long contracts could provide a mechanism for subsidy of the old by the young and of the sick by the healthy. The problem is that the contracts are normally too short to allow this to happen.
Private insurance normally results in incomplete population coverage, and in general this problem is worse in poorer countries and those with more unequal income distribution.
Medical savings account
Medical savings accounts, which require patients or families to save for the purpose of routine, non-catastrophic health care, have attracted widespread interest. A version has been used in Singapore for some years, and they have been suggested in the USA as a substitute for some employer-based insurance. They are based on the idea that a major problem is not the inability of families to afford health care but rather the difficulty in ensuring that the necessary funds are available at the time of need. Families or individuals have to set aside money each month, and this continues till a sufficiently large fund is established. When money is spent from the fund the family must start saving again to replenish it. In the case of Singapore the fund can be passed on to the next generation
Direct payments
Direct payment by individuals can deter use of services.
Since deterrent effects are related to incomes it is possible to get round some of the problems if exemptions are allowed for poorer or chronically sick people.
Resource allocation has two dimensions:
1 At the macro level, it is a planned process, based on policy decisions by government or public bodies, which devolves funds to purchasers (either central or local) or directly to providers.
2 At the micro level the amount of resources consumed by individual patients is determined by the professional judgement of health care workers.
There are three goals when allocating resources:
- Equity. You need to ensure that all people who need care have access to these services.
- Allocative efficiency. At both the macro and micro level it is necessary to ensure that funds are not wasted on services, which have, relative to other services, low effects on health.
- Technical efficiency. At the micro level, only the minimum necessary resources are used to deliver a particular activity or set of activities. Inefficiency may arise either if there is an inappropriate combination of inputs (e.g. health workers but no drugs or equipment) or an inappropriate use of inputs (e.g. using expensive hospital care when the same or better treatment could be provided at lower cost in primary care).
1 Should there be one or more than one social insurance company?
1 The key concerns are the efficiency of risk bearing, choice and cost. Fewer companies will tend to allow more efficient spreading of risk, but there is less choice for the population. The effects on costs are not clear. If you believe that competition will lead to lower costs, then several should be allowed. If you believe that administration costs will be higher with many companies, then few should be allowed. There is also a problem of adverse selection (some companies avoiding taking on people who will need a lot of expensive care) if there are several companies.
