Health Financing Challenges

Health Financing ChallengesMay 2006

Overview1. Principles of health financing2. Most common models3. Some observations from RAND research4. China’s health financing system

In Most Countries, Health Care Policy InvolvesBalancing Key Goals for the Health SystemKey Health System GoalsHighQualityCostControlsUniversalAccessChoice ofProviders

Financing Is Part of the Foundation for a SuccessfulHealth SystemHealthy PeopleQuality CareTechnologyPrimary CarePublic HealthResearchFinancingPlanning, Management & EvaluationHealth System Goals

Principles of Health FinancingRevenueCollectionPoolingPurchasing

Collecting Revenues Is Crucial forFinancing the Health SystemRaising sufficient &sustainable revenuesCollecting revenuesfor the healthsystem means…Raising revenuesin an equitable &efficient mannerRaise sufficient resourcesto cover public health,primary & basic careProtecting peoplefrom financial hardshipif sick or injured

Pooling Is the Core Principle of Insurance:(spread risk so no individual has catastrophic expenses)Creating pools thatefficiently managehealth risksPooling revenuesfor the healthsystem means…Creating pools that alsoequitably managehealth risks

Efficient Purchasing of Services Is Key toHealth System PerformancePurchasing inthe healthsystem means…Using resources topurchase the “right amount”of servicesUsing resources topurchase the “right kind”of services

Overview1. Principles of health financing2. Most common models3. Some observations from RAND research4. China’s health financing system

Models of Health Financing SystemsNational HealthServiceSocial HealthInsurancePrivate HealthInsuranceMain revenue type:General taxesPooling:National poolPurchasing:National or regionaldirect purchase ofservicesMain revenue type:Payroll taxPooling:Pools by job orincomePurchasing:Collective andselective contractsMain revenue type:Individual &employer paymentsPooling:Privately managedpoolsPurchasing:Selective contracts

Health Financing Systems Around the WorldNational HealthServiceSocial HealthInsurancePrivate HealthInsurance• United Kingdom• Canada• New Zealand• Australia• Italy• France• Germany• Japan• United States• Greece• SingaporeMost countries have mixed financing systems withboth public and private sources of funds

Some “Pros” of Each Health Financing SystemNational HealthServiceSocial HealthInsurancePrivate HealthInsurance• Universal healthcoverage•Pools risks forwhole population• Relies on a solidsource of revenue• Potential foradministrativeefficiency and costcontrol• Most countrieshave achieveduniversal coverage•Relies on diverseand numeroussources of funds•Defined benefitspackage• Sophisticatedpayment systems• Offers greatercoverage andchoice for thosewilling to buy it• Potential forincreasedcompetition

Some “Cons” of Each Health Financing SystemNational HealthServiceSocial HealthInsurancePrivate HealthInsurance• Lack of definedbenefits packageleads to geographicvariation in coveredservices• Potential for carerationing andwaiting lists• Multiple fundscomplicate efficientmanagement ofresources• Defined benefitstend to focus oncurative rather thanpreventive care• Decisions aboutadding benefitsdifficult and costly• Can be expensiveand regressive• Coverage levelsacross productsvary widely• Requires strongregulatory oversight• Not an effectivemechanism forachieving universalcoverage (e.g. U.S.)

Overview1. Principles of health financing2. Most common models3. Some observations from RAND research4. China’s health financing system

RAND’s Research on Health Care FinanceRAND has developed a wide range of innovative approachesfor addressing key issues in health financing and economicsResearch areas include:– Health insurance (e.g., effect on access to care)– Managed care (e.g., effect on health care markets andvulnerable populations)– Prescription drug benefits (e.g., effects of benefits onhealth of chronic care patients)– Health system design and evaluation (e.g., Qatar,Palestine

RAND’s Health Insurance Experiment• Objective: tested how cost sharing affected use ofmedical services and health• Results:– Cost sharing reduces spending– Cost sharing reduces use of all kinds of treatment– People reduce both essential and non-essentialcare– Cost sharing does not affect quality of care– Cost sharing does not affect health, except for thevery poor and the very sick

Overview1. Principles of health financing2. Most common models3. Some observations from RAND research4. China’s health financing system

China’s Health Financing System Mixes All Three“Traditional” and Some “New” ModelsTraditional Models• A “national” health service funded by central, provincialand county government budgets• Social insurance for employees of government andstate-owned enterprises• Small but growing private insurance marketNew Models• Community-based financing schemes in someprovinces• Medical savings accounts in some urban areas

China’s Health Care System:Rapid Success in the 1960s & 1970s• Doubled life expectancy, compared with 1930s and40s• Comprehensive systems of health care set up inrural and urban areas• Praised by the World Health Organization as amodel of primary health care• Rapid change in improving quality of careHowever, the Chinese health care system has undergonesignificant changes over the past 20 years

In General, Health Insurance Coverage inChina Has Fallen Since 19938070% ofpopulationcovered6050403020100RuralUrban199319982003Source: World Bank

Many in China Have No Accessto Health InsuranceInsurance SystemsUrbanRuralPublic insuranceCooperative medicalinsurancePrivate insurance43%7%6%3%10%8%No insurance45%79%Source: 2003 National Health Services Survey, Chinese Ministry of Health

China’s Child Mortality RateHas Not Fallen as Predicted1960s 1970s 1980s 1990s0-1-2-3-4-5-6-7Actual % ChangePredicted % ChangeSource: World Bank

China’s Reform Efforts Face Key Challenges• Large, aging population; increasing chronic disease• Individuals covered by rural plans who migrate to urbanareas have no coverage under urban plans• Most reforms do not appear to protect the poor, whopay a higher share of income toward health care• Most health spending is on hospital rather than primarycare• Rapid development is adding to environmental healthproblems• Demand among affluent for technology-intensive healthcare is increasing

Financing Will Be Key to SuccessTo improve its health system, China needs to:• Develop data and surveillance systems that cansupport the magnitude of the change• Invest in health service research to measure,evaluate, and guide system reformSmall changes in financing will have hugeeffects on costs, access, and quality