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Regulation and the Role of Government in SHI and VHI Dr. Pablo Gottret Senior Economist Health, Nutrition and Population April 2004.

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Presentation on theme: "Regulation and the Role of Government in SHI and VHI Dr. Pablo Gottret Senior Economist Health, Nutrition and Population April 2004."— Presentation transcript:

1 Regulation and the Role of Government in SHI and VHI Dr. Pablo Gottret Senior Economist Health, Nutrition and Population April 2004

2 The Millennium Development Goals (MDGs) In the 1990s The Global Community Made a Pledge to Help Developing Countries Achieve the MDGs

3 Extreme Poverty: Halve, between 1990 and 2015, the proportion of people whose income is less than $1 a day. Halve, between 1990 and 2015, the proportion of people who suffer from hunger. Safe Water & Sanitation: Halve by 2015 the proportion of people without sustainable access to safe drinking water. By 2020, achieve significant improvement in the proportion of people with access to sanitation. Child & Maternal Health: Reduce by two thirds, between 1990 and 2015, the under-five mortality rate. Reduce by three quarters, between 1990 and 2015, the maternal mortality ratio. Primary & Girls' Education: By 2015, boys and girls everywhere complete a full course of primary schooling. Eliminate gender disparity in primary and secondary education, preferably by 2005, and in all levels of education no later than 2015. Communicable Diseases By 2015, halt and begin to reverse the spread of: HIV/AIDS Malaria & Other major diseases. Millennium Development Goals (MDG)

4 Reduce child mortality Under Five Mortality (per 1,000 live births) 78 86 29 0 20 40 60 80 100 19901999 2015 Reduce Child Mortality Improve Maternal Health Births attended by skilled health personnel (% total) 51 90 47 0 20 40 60 80 100 19882015 Millennium Development Goals Global Aggregates

5 Children of Poor Families Are Worse Off

6 Financing Policies with Good Governance and Local Capacity Allow Countries to Leverage Outcomes Outcomes Financing Governance Capacity

7 Individuals Government Providers Local Gov. Benefits When Good Policies and Capacity are Missing Things Break Down: Policy Information/M&E Capacity Household Behaviors Institutional Incentives Financing Money Alone Weak Policies & Corruption Lack of Community Involvement Problems with Supply Lack of Demand Outcomes

8 Global GDP –US$31 Trillion (3 - 4 percent Growth Rate) Global Health Spending –US$2.6 Trillion (8 percent of Global GDP) Spending In Developing Countries –US$280 Billion (11 percent of total spending) Let us Look at a Few Numbers

9 Only 11 Percent of Global Spending for 90 Percent of the World’s Population

10 Revenue Pooling Resource Allocation Collection or Purchasing (RAP) What are Good Health Financing Policies? Private Public Taxes Public Charges Mandates Grants Loans Private Insurance Communities Out-of-Pocket Public Providers Private Providers Service Provision Government Agency Social Insurance or Sickness Funds Private Insurance Organizations Employers Individuals And Households

11 Revenue Collection –Difficulties reaching rural & informal sectors –Weak Taxation Capacity Pooling –Incomplete and fragmented revenue pool –Incomplete and fragmented sharing of risks Resource Allocation and Purchasing –Public subsidies often have pro-rich bias –The poor often bypass formal sector providers Understanding Rich Poor Differences in Health Care Financing

12 Low-Income Countries Have Weak Capacity to Raise Public Revenues Total Government Revenues as % GDP The tax structure in many low-income countries is often regressive. 0 20 40 60 80 100 Per capita GDP (Log scale) 10,000 100,000 1,000100 Governments in many countries often raise less than 20% of GDP in public revenues; and

13 What do We Mean by Pooling? Age Resource endowment Health risk Resource endowment Cross-subsidy from low-risk to high-risk Low risk High risk $ $ Income Resource endowment Cross-subsidy from rich to poor Poor Rich $ $ Cross subsidy from productive to non-productive part of the life cycle Produ ctive Non- produc tive $ $

14 Low Income Countries Have Less Pooling of Revenues Share of world’s 1.3 billion living on less than US$1 day indicated by size of blue bubbles

15 Low-Income Countries Have Pro-Rich Bias of Public Subsidies Subsidies (%) Government health expenditure)

16 What is a Typical Financing Scheme in a Developing Country Segmented Financing System –Limited public health and concentration of expenditures in supply side subsidies to curative care (large public hospitals) –Social Insurance with low coverage usually concentrated in middle and upper class urban population (salaried workers) –Communities have responded with community risk pooling mechanisms. –Limited supplementary insurance for those who can afford it There is no package to supplement Unclear rules of the game Little development of Capital markets and prohibition to invest abroad Mandatory requirements to be a fully complying insurance company in the country. –Large out of pocket payments for curative care, usually paid by lower income families.

17 Domestic Financed Gov. Expenditures (Central Gv. + SHI) varies across countries for any level of GDP

18 Private Expenditure in Health is More Important, specially in Low Income Settings Source: WDI, 2002 Notes: Regional aggregates exclude high-income countries (GNI per capita > $9,206); MENA health expenditures include Saudi Arabia and Oman, which are both considered upper middle-income countries according to World Bank specifications.

19 Some Illustrative Numbers (in %, data for year 2001) India Bolivia Rwanda Thailand THE / GDP5.1 5.3 5.5 3.7 Public H. Exp. / THE 17.9 66.355.5 57.1 Social H. Exp THEN.A. 35.0 0.4 14.9 Coverage / Population1.0 21.0 1.4 N.A. Private H. Exp / THE82.1 33.7 44.5 42.9 OOP / Private H. Exp99.0 82.0 N.A. 85.0 THE = Total Health Expenditure OOP = Out of Pocket Expenditures N.A. = Not Available Source: WHO

20 MODELS – FLOW OF FUNDS CLASSIC FRAGMENTED MODEL of SHI Gral. Gov. Indiv./firms 1 MOH Indiv./Firms 2 SIF 1SIF 2 P3 Pmoh P2 Psif1 Psif2 EXAMPLES Mexico, Bolivia, Peru, Ecuador Typical Problems: Inefficiency, duplication of infrastructure, duplication of Coverage, low coverage breadth MOH, low coverage depth, Equity, supply side subsidies, subsidies to middle/upper class

21 MODELS – FLOW OF FUNDS SINGLE PAYER Gral. Gov Indiv./ Firms Social Insurance Fund P 1 P 2 P 3 P4 EXAMPLES: Costa Rica, Canada, Taiwan, Korea, Estonia, Hungary TYPICAL PROBLEMS: Cost containment, deficits, transparency/accountability, possible lack of competition

22 MODELS – FLOW OF FUNDS Managed Care -- Argentina Indiv. /Firms Collector OS 1 OS 2 OS 3 P3P5 P1 P2 P3 P4 P2 P3 Solidarity Fund High Complexity Fund PROBLEMS: Risk selection, double coverage, transparency/accountability, supervision/control, high administrative costs

23 MODELS – FLOW OF FUNDS Managed Care -- Colombia Gral. Gov.Indiv./Firms Social Ins. Fund EPS 1 EPS 2ARS 1 ARS 2 P5 P3 P1 P4P2 P1 P3P2 PROBLEMS: Administrative costs, targeting, equity, risk selection.

24 MODELS – FLOW OF FUNDS Managed Care -- Chile Indiv./ Firms Higher Income FONASA ISAPRE 1 P2P5P4P2P3P4 ISAPRE 2ISAPRE 3 P3P1P5P1 Indiv./ Firms Lower Income PROBLEMS: Equity, risk selection, perverse incentives from opting out, high administrative costs, subsidies to upper income


26 Regulation will Vary Depending on Assumed Risk Among Others Entitlement, Enrollment and portability Degree of Mobility of insured population Minimum entry requirements to industry Solvency margins and prudential regulation (reserves, investment of reserves, financial disclosure actuarial studies, corporate governance, others) Consumer protection and disclosure (complaints and periodic and public information requirements) Exit mechanisms (intervention, liquidation, others) Regulation related to market failures (adverse selection, risk selection and moral hazard)

27 Will More Money Alone Help Achieve the MDG? There are estimates that to achieve MDG there is a need of additional funding for health expenditures in the range of US$ 30 to 80 billion. It is unlikely that this money will come from donor financing alone and if it did it would be non-sustainable. Donor financing must leverage structural change.

28 What is it Needed in Financing to Achieve MDG? A sustainable Financing Strategy per Country Understanding Health as a System Clear and complementary roles for Public Sector, Social Insurance, Community Risk Pooling Mechanisms, Private Insurance and Out of Pocket Payments. Clear and sustaining rules of the game all across.

29 Public Sector Private Sector NGOs and International Partners Individuals and Households No Single Actor Can do it Alone Insurers Better Financial Protection In Health

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