Lecture 2 - Taxation and Social Health Insurance

Question 1

What does it mean to analyse effectiveness at the micro level?

Answer 1

Clinical effectiveness: improving the health of individual patients through medical care services

Question 2

What does it mean to analyse effectiveness at the macro level?

Answer 2

Population effectiveness: improving the health of populations and communities through medical and/or nonmedical services

Question 2

What does it mean to analyse efficiency at the micro level?

Answer 2

Technical efficiency: for a given mix of inputs, how can you organise health services to maximise health improvements or reduce costs

Question 3

What does it mean to analyse efficiency at the macro level?

Answer 3

Allocative efficiency: allocate resources to different inputs to maximise health improvements

Question 4

What does it mean to analyse equity at the micro level?

Answer 4

Procedural equity: maximizing the fairness in the distribution of services across groups

Question 5

What does it mean to analyse equity at the macro level?

Answer 5

Substantive equity: minimizing the inequalities in the distribution of health across groups

Question 6

What is technical efficiency vs allocative efficiency?

Answer 6

Technical efficiency: for a given mix of inputs, how can you organise health services to maximise health improvements or reduce costs

Allocative efficiency: allocate resources to different inputs to maximise health improvements

Question 7

What is procedural vs substantive equity?

Answer 7

Procedural equity: maximizing the fairness in the distribution of services across groups

Substantive equity: minimizing the inequalities in the distribution of health across groups

Question 8

What is vertical equity?

Answer 8

This principle focuses on the ability to pay. It argues that those with greater resources and income should contribute a larger share towards public services and social programs.

This often translates to a progressive tax system, where tax rates increase as income levels rise.

Question 9

What is horizontal equity?

Answer 9

This principle emphasizes treating people in similar circumstances equally. In taxation, it means people with the same income and taxable assets should pay roughly the same amount in taxes. The idea is to avoid preferential treatment and ensure a level playing field.

Question 10

Define regressive, proportionate and progressive taxes?

Answer 10

Regressive: poorer people are paying a higher proportion of their income or receiving less when compared to richer people

Proportionate: both affluent and poor people pay equal proportions

Progressive: affluent people pay more

Question 11

What is libertarianism? What is the policy focus?

Answer 11

Principle: Respect the right to life, liberty and possessions

Policy focus: free market

Question 12

What is Rawlsianism? What is the policy focus?

Answer 12

Principle: Tolerate inequality only if it benefits least well-off

Policy focus: social exclusion (poverty reduction)

Question 13

What is utilitarianism? What is the policy focus?

Answer 13

Principle: Greatest good for the greatest number

Policy focus: efficiency

One problem with utilitarianism is that it won’t allocate any money to people with rare diseases

Question 14

What is egalitarianism? What is the policy focus?

Answer 14

Principle: To each according to their need; from each according to their ability to pay

Policy focus: distribution

Question 15

What are the 2 actions that can be taken to increase efficiency?

Answer 15

Decrease waste, improve access to necessary services

Use savings from waste to improve access

Question 16

Both purchasing power and competition can be used to drive efficiency. How?

Answer 16

Purchasing Power:

Consumer Leverage: Strong purchasing power in the hands of consumers gives them more leverage when it comes to prices. They can choose to spend their money with businesses that offer the best value for their money, forcing companies to be efficient in their operations and pricing to attract customers.

Signal for Innovation: High purchasing power allows consumers to be more selective and demand higher quality goods and services. This creates a signal for businesses to innovate and develop new products or improve existing ones, pushing the boundaries of efficiency.

Competition:

Cost Reduction Pressure: When businesses compete in a market, they constantly look for ways to reduce costs and improve their margins. This pressure drives them to find efficiencies in production, logistics, and administration.

Innovation Catalyst: Competition also encourages businesses to innovate. In a race to win over customers, companies develop new technologies, streamline processes, and find creative solutions to meet customer needs, all leading to greater efficiency in the long run.

Question 17

What are public sources of revenue?

Answer 17

Tax-based: general tax
Social insurance: payroll tax

Detaches payment from health status

Question 18

What are private sources of revenue?

Answer 18

Insurance premiums, individual savings accounts, OOP payments

Contributions are based on how healthy/sick you are

Question 19

What is normative tax theory?

Answer 19

What should be

The ethical and philosophical justifications for taxation. Asks questions about fairness, equity, and the role of government is redistributing wealth. Consider ability to pay, benefits received, and social justice when evaluating tax systems.

How to design taxes to promote social welfare in terms of the public interest in equity and efficiency

Question 20

What is positive tax theory?

Answer 20

What is

The factual aspects of taxation. Analyses how different tax policies affect economic behaviour (investment, income distribution, efficiency). Use economic models and data to predict the consequences of various tax structures.

The economic effects of taxes the government uses

Question 21

What is the Kakwani Progressivity Index?

Answer 21

Measures the progressivity of a social intervention.

It compares the distribution of benefits or burdens (taxes) under a program to the pre-program income distribution.

A positive Kakwani Index indicates a progressive system, meaning those with higher incomes contribute more or receive less benefit compared to their pre-program situation. Conversely, a negative value suggests regressivity, where the burden falls more heavily, or benefits go disproportionately to those with lower incomes.

Question 22

What are the direct, indirect and hypothecation of tax?

Answer 22

Direct tax: paid directly to the government and levied on one’s income and profits

Indirect taxes: paid to the government if one makes any purchases of goods and services

Hypothecation of tax: dedication of revenue from a specific tax to a particular expenditure

Question 23

What is the benefit of general tax?

Answer 23

General draws on larger revenue base (all taxes)

Question 24

What is the benefit of hypothecated tax?

Answer 24

Earmarked may be less resisted

Question 25

What is the con of hypothecated tax?

Answer 25

Earmarked is vulnerable to economic cycles

Revenue Fluctuation: Hypothecated taxes are often tied to specific spending programs or projects. During economic downturns, these taxes can see a significant drop in revenue. This is because the activities that generate the tax revenue might decline. For instance, a gas tax might see a decrease in revenue if people are driving less due to rising gas prices or economic hardship.

Limited Flexibility: Hypothecated taxes can limit a government’s budgetary flexibility during economic downturns. Since the revenue is earmarked for specific purposes, it can’t be easily redirected to address other pressing needs that might arise during a recession.

Question 26

What is the pro of national taxes?

Answer 26

National benefits from economies of scale

Question 27

What is the pro of local taxes?

Answer 27

Local may be more responsive to local needs

Question 28

What are the 2 cons of local taxes?

Answer 28

Local areas may struggle to finance themselves

Local people probably won’t want their hospital to close even if it benefits the greater health system. Potential clashes with efficiency gains

Question 29

Which of the following is regressive and progressive; direct and indirect taxes

Answer 29

Direct taxes are usually progressive

Indirect taxes are usually regressive

Question 30

Why does “soft hypothecation” not work?

Answer 30

With ‘soft hypothecation’, the specified tax would fund only part of total public expenditure on health care, the remainder coming from the rest of the tax ‘pot’. It is not helpful because you are reducing the allocation through general taxes, so the net effect is no true increase.

Question 31

Are social health insurance schemes usually run by the government?

Answer 31

No, run by independent self-governing entity

Question 32

What are the 2 advantages of social insurance systems?

Answer 32

• Choice of insurer
• May be more transparent, less political

Question 33

What are the 4 cons of social insurance systems?

Answer 33

• Possibility of risk selection (insurance company is able to attract individuals or groups with a lower risk of needing to file claims) and inequities if no risk equalisation scheme is in place across schemes
• Possibility of entitlements being linked to contributions
• Externalities:
  o Impact on labour costs (increased cost with employment may reduce incentive to work)
  o Impact on labour force (if employers pay most or significant share of contributions, might not want to employ more)

Question 34

What are 4 things that can lead to a small revenue base under a social health insurance system?

Answer 34

1. Rising unemployment
2. Growing informal economy
3. Population ageing
4. Narrow revenue base from caps on contributions

Question 35

What are some policy responses that can help overcome the limitations of a social health insurance system?

Answer 35

1. Raise premiums: increase tax rate or expand tax base
2. Lift contribution ceilings to generate more revenue
3. Centralising collection for effectiveness, admin efficiency and equity of access
4. Increase contributions of retirees
5. Increase retirement age
6. Rely more on general taxes. Lower payroll tax may stimulate the economy.
7. Immigration policies (the healthy immigrant effect - Immigrants, on average, tend to be healthier than the native population in the host country upon arrival.)

Question 36

What are the benefits of a single-payer SHI system?

Answer 36

• Everyone gets covered with the same package
• Providers are paid at the same/similar rates (incentivizes them to increase efficiency)
• Costs are significantly reduced
• Increased effort to streamline admin and reduce waste

But can have issues with bureaucracy and it can reduce innovation.

Question 37

What are the potential benefits of competition in a social health insurance scheme?

Answer 37

Improved Efficiency: Competition can incentivize schemes to manage costs effectively and deliver better value for money. They might negotiate lower prices with healthcare providers or invest in preventative care to reduce future costs.

Increased Consumer Choice: People might have more options for coverage, allowing them to choose a plan that best suits their needs and budget.

Innovation: Competition can drive innovation in areas like benefit design, customer service, and technology use.

• The Netherlands: The Dutch system features multiple competing social health insurance funds. Studies have shown some evidence of improved efficiency in cost control and a focus on preventative care.

Question 38

What are the potential drawbacks of competition in social health insurance schemes?

Answer 38

Limited Choice and Complexity: Having too many options can be overwhelming for consumers. Additionally, navigating different plans and benefits can be complex. Comparing plans with different benefit structures and pricing can be challenging for consumers, potentially leading to uninformed decisions.

• Switzerland: Switzerland has a complex, multi-payer system with numerous competing insurers offering a wide variety of plans. While offering extensive choice, the system can be confusing for consumers who struggle to compare plans and make informed decisions.

Cream Skimming: Insurers might focus on attracting healthy individuals, leaving the public system (or competitor schemes) with a higher proportion of sick people, making it harder for them to function financially.

• Germany: Germany’s Bismarckian system allows some competition between public and private funds. However, critics argue that private funds tend to attract healthier individuals, leaving the public system with a higher financial burden. This raises concerns about equity in access to care.

Focus on Profits over Social Goals: The primary focus might shift from ensuring universal access to healthcare towards maximizing profits, potentially leading to coverage gaps or reduced benefits.