Farid Abolhassani The Changing World of Health Care Finance 13

Learning Objectives After working through this chapter, you will be able to: Distinguish between the principal ways of funding health services and paying providers Identify historical and cultural factors that have influenced the evolution of health finance Identify factors which have determined the growth of health care spending Distinguish between the different options of private– public mix in the finance and provision of health services

Key Terms Capitation Payment Capitation Payment A prospective means of paying health care staff based on the number of people they provide care for. Community financing Community financing Collective action of local communities to finance health services through pooling out-of-pocket payments and ensuring services are accountable to the community. Co-payments (user fees) Co-payments (user fees) Direct payments made by users of health services as a contribution to their cost (e.g. prescription charges). Financial intermediary Financial intermediary An agency collecting money to pay providers on behalf of patients.

Key Terms Out-of-pocket (direct) payment Out-of-pocket (direct) payment Payment made by a patient directly to a provider. Over the counter (OTC) drugs Over the counter (OTC) drugs Non-prescription drugs purchased from pharmacists and retailers. Regulation Regulation Government intervention enforcing rules and standards. Universal coverage Universal coverage Extension of health services to the whole population. Unofficial payments Unofficial payments Spending in excess of official fees, also called ‘under the table’ or ‘envelope’ payments.

History of Health Care Financing Government or charities: early in the history of health care Private (voluntary) health insurance: 18 th century In the nineteenth century, private insurance was developed throughout Europe and spread to North and South America Social (compulsory) health insurance: 19 th century (1883) for industrial workers Coverage was extended later to family members, other employees and pensioners Payroll-based social insurance systems developed steadily in Europe, and later in Latin America and Asia

Revenue-rainsing Options Direct payments Private insurance premiums Social insurance contributions Taxes

Financing, Funding, and Remuneration Financing Funding Remuneration Health System Health Facility Provider FinancingFinancing

Other Government Incomes Other Government Incomes Household Income Household Income Public Fund Public Fund Insurance Fund Insurance Fund Health Care Facility Health Care Provider Resource Generators Resource Generators Client Foreign Resources Foreign Resources Service Delivery Service Delivery Tax Premium Out of Pocket Charities Financial Flow in Health Care Out of pocket payment

Public–private mix in finance and provision PrivatePublic Finance Provision IIIPublic IVIIIPrivate

Out-of-pocket Payment Private consultations with doctors Over the counter (OTC) drugs Co-payments and user fees Unofficial fees Services not covered by insurance: transport costs, traditional or complementary medicine and luxury services such as cosmetic surgery.

The flow of funds in health care provision Households Financial intermediary Providers Out-of-pocket Payment Private Insurance Social Insurance Government

Two models of health care finance for achieving universal coverage Otto von Bismarck (1815–98): Prusso-German statesman and founder of social insurance in Germany. Bismarck introduced in 1883 a plan based on compulsory insurance protecting workers against accidents, sickness and invalidity. William Beveridge (1879–1963): British economist and architect of the British welfare state. The Beveridge Report proposed a tax funded plan to provide ‘full preventive and curative treatment’ to every citizen of the UK, leading to the foundation of the NHS in 1948.

Efficiency Considerations in Financing Administrative efficiency Tax-based publicly finance systems are more efficient than multi-payer private systems Economic efficiency Private insurance market failure Tax-induced inefficiencies Behavioral changes that follow all revenue-raising options

Equity Concerns in Financing Progressive financing systems High income individuals contribute a greater proportion of their income compared to low income ones Regressive financing systems Low income individuals contribute a greater proportion of their income compared to high income ones

Equitability of Revenue-raising Options Progressive Regressive Direct payment Private insurance premiums Social insurance contributions Taxes

Health Care Providers Public Governmental public bodies with statutory responsibilities Private For profit Not for profit

Main Issues of Provider Payment Doctors should be employed or act as independent contractors; Payments should be based: On the salary, On the number of patients cared for (capitation), On the items of care provided (fee-for-service – FFS), On the quality of their performance or On a combination of these options; Patients should pay health care providers directly and then claim reimbursement from government or insurance companies or payments should be made directly to the providers by the funders.

Increasing Health Costs Demographic factors Economic factors: Economic growth is associated with rising costs for health services. Health technology advances Disease patterns Political factors Some popular fallacies of the current debate High-cost dying Prevention and early treatment increase cost in the long-run New equipment may be expensive initially but may ultimately be more cost-effective