THE FINANCING FUNCTION

1
The Role of Medical Insurance in Health
development LHMA Seminar July 9, 2002 Fair
Financing of Health Care(1) Walid AMMAR, MD,
Ph.D(2)

• This presentation was originally prepared by Dr.
  Ammar for the Scientific Peer Review Group.
  Geneva, February, 2002
• Director General of the Ministry of Public
  Health.
• Member of the Scientific Peer Review Group, WHO,
  Geneva.

2
World Health Report 2000

• Goals Functions
• Health Provision
• Responsiveness Financing
• Fairness in financing Resource generation
• Stewardship

3
Goodness The system responds well on average
to what people expect of it. The best
attainable average level Fairness The system
responds equally well to everyone. The
smallest feasible differences among individuals
and groups Overall attainment Goodness and
Fairness combined Performance Getting
results from resources
4
Health System Attainment and Performance
LEVEL
HEALTH
DISTRIBUTION
OVERALL GOAL ATTAINMENT
LEVEL
GOALS
RESPONSIVENESS
DISTRIBUTION
FAIRNESS FINANCIAL CONTRIBUTION
ON LEVEL OF HEALTH
PERFORMANCE
OVERALL HEALTH SYSTEM PERFORMANCE
5
Health (disability-adjusted life
expectancy) Total 50 Overall or
average 25 Distribution or
equality 25 Responsiveness Total 25 O
verall or average 12.5 Distribution or
equality 12.5 Fair financial
contribution Distribution or equality 25
6
The Financing Function

• IMPACT
• Health Conditions
• Social Goals
• Solidarity (fairness, redistribution of income)
• Financial Protection (catastrophic payment)
• Accountability

7
The Financing Function

• SUBFUNCTIONS
• Collection
• Fund Pooling
• Purchasing

8
COLLECTION

• Tax Revenues direct taxes, indirect taxes
  (earmarked taxes) progressivity
• Mandatory Contribution to a Social Security Fund
  Payroll taxes
• redistribution limited to the formal sector
• Private Insurance Premiums
• adverse selection
• User Fees
• disincentive effect, expose to catastrophic
  payment

9
COLLECTION

• Solidarity and Financial Protection
• Minimise out-of-pocket payments
• moral hazard, sustainability
• Make revenue collection progressive
• depends more on fiscal, administrative and
  social security system
• payroll taxes may affect employment
• Reduce links between contributions and
  accessibility

10
FUND POOLING

• Redistribute income from the richer to the poorer
  (pooling together the rich and poor or separate
  pools with subsidies from the richer to the
  poorer pool)
• Transfer resources from the healthy to the sick

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FUND POOLING

• A single national pool vs a number of separate
  pools
• Mandatory vs Voluntary
• Considerations
• Risk sharing, competition among pools, adverse
  selection, income redistribution, economies of
  scale, accountability, financial solvency and
  need for reinsurance

12
FUND POOLING

• Ability to manage risks
• Ability to share risks across pools
• Ability to insure individuals

13
FUND POOLING

• Extent of population coverage ( of insured)
• Depth of coverage (deductibles, copayment,
  ceiling)
• Comprehensiveness (interventions covered)
• The probability for an individuals needs
  to be covered by a pool

14
PURCHASING

• Budgeting and allocation of resources
• Pricing and Payment mechanisms
• Benefit package

15
PURCHASING

• PAYMENT MECHANISMS
• Global budget
• Fixed salaries
• Fee-for-service
• Flat rates
• Capitation
• Considerations
• - Effect on cost (over prescription) and quality
  (underprovision)
• - Depends on institutional capabilities to deal
  with detailed bills (fee-for-service) or to
  assess health outcomes (capitation)
• - The bargaining power (pricing) and quality
  assurance (clinical protocols)

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Financing Function Monitoring

• Indicators are meant to measure the
  EFFECTIVENESS of the Financing Function
• Collection Indicators
• Potential Resources
• Available Resources
• Allocated Resources (to health)
• The share of health spending that is prepaid
• Pooling Indicators
• Extent depth and comprehensiveness of coverage
  and Risk sharing across pools
• Purchasing Indicators
• Relationship between purchaser and provider
• Payment Incentives

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Measuring and Monitoring the Financing Function
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Measuring and Monitoring the Financing Function
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Fairness of Financial Contribution
Health financing contribution of a household
prepayh ooph
HFCh (EXP Food aTax)h
Inequality Index
HFCh Mean HFCh3 II S N
0.125
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Vertical Vs Horizontal Equity
n S
HFCh-HFC3 h 1 FFC 1-4
0.125 n
FFC fairness of financial contribution HFCh
health financing contribution of a household n
total number of households
Colombia 0.992 rank 1 Lebanon
0.929 rank 101, 102 Sirra Leone 0.468 rank 191
k S
HFCi-HFC3 i 1 FFC 1-4
0.125 k
HFCi the mean contribution of households in
each spending category HFC the
mean contribution of all households k number of
household spending categories
Lebanon 0.99945
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Comments on the Fairness of Financial
Contribution index FFC
1- The concept of fairness This concept is
totally different from the traditional concern
with the existence of financial barriers to
accessing health services. 2- What does (does
not) FFC measure FFC index measures both
vertical and horizontal equity, it is rather
sensitive to the latter. It measures the
differences between those who have paid for
health care. However it does not capture those
who have not utilized health services (despite
their needs) because unaffordable. It does not
differentiate between vertical and horizontal
inequity. 3- What guidance does the FFC index
(and ranking) provide FFC is likely to be
better, the more the financing system relies on
prepayment, and worse, the more the system is
financed by out-of-pocket fee-for-service. This
applies to all countries whatever their indices
or their scoring are. Ensuring a universal
coverage financed by prepayment has been always a
desirable target for countries to ensure access
to health services and to protect from financial
risks. How much progress is done toward this
target depends rather on the history of a
country, its political, social, administrative
and fiscal systems, as well as on the income
level and distribution of GDP per capita.
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Questions to ask in deciding what interventions
to finance and provide
Public good?
No
Yes
Significant externalities?
No
Yes
Adequate demand?
Yes
Catastrophic cost?
No
Beneficiaries poor?
Yes
No
Insurance appropriate?
No
No
Yes
Cost-effective?
Yes
No
Yes
Leave to regulated private market
Public?
Private?
Do not provide
Finance publicly