Health Financing Challenges in the Baltic States Toomas Palu Sr. Health Specialist, World Bank Member of Management Board Estonian Health Insurance Fund

Health financing reforms include to a various degree social insurance elements Estonia Health Insurance Act – 1991, 2002 Earmarked 13% payroll tax Estonian Health Insurance Fund (EHIF Act 2000) Latvia Government decrees 1993, 1997, 1999 Earmarked 28.4% of income tax Latvian State Compulsory Health Insurance Agency (Gov agency) Lithuania Health Insurance Act 1995 Earmarked 30% of income tax, 3% payroll tax Administered by State Patient Fund (Government Agency)

The main objective of introducing health insurance in the Baltics was … … to ensure increased and sustainable level of health financing powered by physician lobby.

Health expenditures: appropriate level? how sustainable? * * OECD and EU candidate countries, data from , OECD, WHO

Explanation of different health financing reform outcomes Estonia has higher level of health financing because health insurance is the main source of public health funding Formalisation of economy, gradual decline of “grey” economy Productivity improvements Average salary growths higher than economy in general In Latvia and Lithuania large part of health financing is determined through political budget negotiations, but … Health sector neither EU nor NATO priority Health issues only now becoming part of political (election) debates Health financing information is not comparable and comprehensive Standard (OECD, WHO) health accounts are assembled only in Estonia Latvia accounts only for public sources, Lithuania assembles its own national health accounts

HI share of overall health financing. Pooling of funds.

Is Estonian narrow tax base sustainable in long term?

Cost pressures Aging population average life expectancy is increasing birth rates below population replacement rate Ever-emerging new high-cost effective medical technologies high cost of pharmaceuticals situation worse for economies of transition because they lag behind in introduction as well as penetration rates of already existing medical technologies Pressure from health care provides to increase reimbursement rates low salaries of medical personnel unfunded capital costs Increased expectations of citizens

Costs of various benefits to EHIF

Examples of cost pressures in Estonia

Solutions to cost pressures More money for health care!? Limited by overall strength of economy Attract private financing - investments, cost sharing, private insurance; PPP - public-private-partnerships Effective and efficient use of scarce resources Keywords: cost-effectiveness, appropriateness, needs, incentives, evidence base, transparency Make choices What benefits are covered by social health insurance

Cost-sharing: regulating user charges Estonia Co-payment of Euro 3.2 for outpatient specialist consultation Co-payment of Euro 1.6 per hospital day up to 10 days (Euro 16) per admission, adjusted annually according to inflation Few exemptions Reasonable user charges for above standard accommodation Patients are charged full cost if the want to by-pass queues Latvia Euro 0.8 for outpatient specialist consultation Euro 8.4 at hospital admission, Euro 2.5 per hospital day up to Euro 25 per admission Extensive exemptions Lithuania Government approves a list of services that are paid out of pocket

Making choices about HI benefits None of the countries has been successful obvious choices have been done – cosmetic surgery, etc. have been excluded from the public benefits packages politically very difficult decisions, not popular among electorate clear criteria are not defined

Technical solutions for better use of scarce resources

Needs assessment and contract planning in Estonian health insurance fund Untying contract planning from historical hospital services production, planning according to patients’ needs Analyze service utilisation variation among 7 population pools as a proxy for need utilisation of data warehouse concept Separate supply induced demand from medical need as much as possible consult with GPs Analyze queues – integrate results Budget planning and scost-and-volume contracts according to needs assessment results

Small area variation in the utilisation of dermatology services, Estonia 2001

Monitoring waiting times

Prioritizing queues in Estonia Application of prioritization protocols joint replacement and cataract surgery queues evaluate need, e.g. - physical impairment (visual aquity, functional mobility) - pain - ability to work, give care to dependents, live independently protocols based on New Zealand experience People with higher needs needs wait less

Optimisation of hospital capacity in Estonia Implemented through Rational “Hospital Masterplan 2015” Legal hospital reform: incorpororation under private law as foundations (trusts) or joint stock companies under public ownership Hospital mergers – internalise efficiency problem to hospital management In 2001 EHIF had 17 hospital contracts in Tallinn In 2002 EHIF has 4 hospital contracts in Tallinn Supported by EHIF contracting Development of conceptual solution for long term care Solving health sector investment financing problem Number of hospitals Number of hospital beds ALOS

Hospital capital investment financing reform Key reform features capital cost will be included in the EHIF price in 2003 hospitals will pay capital charge on assets they have received free of charge from the State hospitals will make their own investment decisions for expensive investments “certificate of need” is required, issued by the State Health Board This policy will be additional incentive for divesting excess hospital buildings and equipment