Funding Health Insurance

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Funding Health Insurance

• Dr. Khaled Samir
• CEO Dar El Oyoun Hospitals

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Common characteristics of health sectors in Egypt

• low absolute expenditure on health services
• a large proportion of total health financing is
  privately generated and flows to private
  providers both formal and informal
• out-of-pocket payments comprise a large
  proportion of health expenditure
• Informal payment

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Objective of this Presentation

• explores the ways of raising revenue, and the
  implications
• Explore why burden of payment fall most heavily
  on the poor and the sick?

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At a time when expectations of health care
systems are rising, Costs challenge
sustainability, How should our health care
be funded?
Funding health careAn introduction
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Analytical framework

• Health financing is an imprecise term,
  encompassing several sub-functions
• related to the flow of resources through the
  health system
• The mechanism for mobilizing resources
• the pooling of various revenue sources
• Allocating resources to (or purchasing services
  from) providers

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Peoples objectives

• universal access for all citizens,
• effective care for better health outcomes,
• efficient use of resources,
• high-quality services and responsiveness to
  patient concerns

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Decision-makers

• seek to translate these objectives
• into
• the nuts and bolts
• of health system organization

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Provider
Citizen
Allocation
Funding
Purchaser
Health Care Triangle
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Finance Equation

• Total Revenue Total Expenditure

Income Profit
No Deficit
the sum of taxation (TF), compulsory or social
insurance contributions (SI), out-of-pocket
payments and user charges (UC), and voluntary or
private insurance premiums (PI)
Donation International loans
Price Quantity
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Finance Equation

• the sum of taxation (TF),
• social insurance contributions (SI),
• out-of-pocket payments and user charges (UC),
• voluntary or private insurance premiums (PI)
• TF SI UC PI P Q

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Finance Equation

• Total Revenue less than Total Expenditure

Deficit
Price Time
Loans grants donations
Vulnerable Gp Poor, Insured with no quality
control
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Difficult Questions ?

• How to fund health care on a sustainable basis?
• Who pay for elderly, unemployed or disabled?
• Do we have the appropriate fund?

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Definitions

• Perfect competition
• Monopolistic comp.
• Purchasing
• Fund Pooling
• Revenue collection
• income redistribution
• risk-sharing

• Risk distribution
• Risk adjustment
• Financial instruments
• Capitation
• Medical savings accounts
• Reforming social health insurance
• social contract

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Market Structure
Single seller for all buyer
Large no. of firm that act noncollusively Easy
entry to the market Non-price competition
Single buyer for all seller
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transferred from rich to poor people (income
redistribution) and from healthy to sick people
(risk-sharing).
Risk Distribution
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Retirees
Minimizing risks usually leads to
public sector
shifting the costs to
Certain conditions
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Revenue collection fund pooling

• Revenue collection must be distinguished from
  fund pooling, as some forms of revenue collection
  do not enable financial risks to be shared
  between contributors, such as medical savings
  accounts and out-of-pocket payments.

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risk adjustment

• Risk adjustment in Competitive social health
  insurance systems has developed mainly from a
  concern to prevent cream-skimming.
• Within tax-financed systems, risk-adjusted
  capitation methods developed from a concern to
  ensure equity of access by ensuring a fair
  allocation of resources to territorial health
  authorities based on the needs of the population.
  Irrespective of the source of funds, however, the
  underlying rationale for allocating based on
  risk-adjusted capitation is the same to ensure
  that each pool (insurance fund or territorial
  health authority) has the correct relative
  level of resources for the population for which
  it is responsible.

Risk adjustment Equity of access
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Purchasing

• Purchasing means the transfer of pooled
  resource to service providers on behalf of the
  population for which the funds were pooled.

Transfer of resources to Provider
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Defining the benefits packagethe size and
content of what is available toconsumers

• For competition to operate in the health
  insurance market, people must be able
• to compare the benefit packages of different
  plans. If a standard minimum package is not
  regulated, the potentially positive role of
  competition based on consumer choice is greatly
  diminished.

Perfect Competition
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Meaning of social contract

• Is interpreted as being a policy contract based
  on inter-generational transfer of resources
  through taxation and social expenditure and
  inter-generational equity equalizing
• the contribution and benefits.

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Medical Saving Accounts

• In this system, individuals contribute a
  proportion of their income regularly to their
  account. The money is then used for health care
  at the point of use. In Singapore, medical
  savings accounts are complemented by mandatory
  catastrophic insurance, for which a premium is
  paid. A public fund pays for the people with low
  incomes.

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Health Insurance Portability and Availability Act
Medical savings accounts

• 1996,
• the KennedyKassenbaum legislation

Free-tax
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Reforming social health insurance systems
.meaning

• Equity,
• Efficiency,
• Better choice for insurees

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Informal payments

• Out-of-pocket payments are made in the public
  sector in some countries despite not being
  officially endorsed.

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Capitation

• Is the main method for calculating purchasers
  budgets adopted in Europe

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What is capitation?

• Capitation can be defined as the health service
  funds associated with a plan member for the
  service in question and for the time period in
  question, subject to any overall budget
  constraint.
• A capitation system puts a price on the head of
  every member

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Capitation

• The capitation sum for a given individual can be
  considered as that
• Persons Relative Expenditure Needs,

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Capitation Calculation

• Once needs factors have been identified in
  whatever fashion weights must be attached that
  reflect their relative influence on the need to
  spend
• age, sex, ethnic origin or disability status
• Capitation sums8 2 3 2 96 cells

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Capitation in the Netherlands

• , age (19 categories), sex (2), urbanization
• (5) and employment and disability status (5) are
  used as the basis for
• capitation sums, implying the need to estimate
• 19 2 5 5 950 cells

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Formal cost-sharing
reducing demand
raising revenue
Demand / Supply curve
Elasticity of demand
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Information asymmetry

• Information is vital to both buyers and sellers
  in a competitive insurance market.
• The absence of clear information about the
  price, quality and conditions of voluntary health
  insurance policies is a type of market failure
  that prevents subscribers from making informed
  comparisons between different products and puts
  them at a competitive disadvantage in the
  marketplace.

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Flow of Fund
Sickness
Transparent
Provider
Citizen
Pool
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Fragmentation in pooling
revenue channels
Service Providers
Common pool
Resource allocation
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Decentralization a complication in pooling

• The transfer of state functions to local
  political and administrative levels. This process
  of decentralization originated outside the health
  sector and was motivated by a political
  rationale.
• the health sector was affected in many ways,
  such as a change in the ownership of providers
  and the transfer of revenue-raising rights to
  local levels
• In principle, decentralization offers a chance
  to bring health services closer to local needs
  and improve accountability.
• In practice, decentralization often further
  fragments the revenue pool and exacerbates
  geographical inequity.

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Efficiency

• technical efficiency
• allocative efficiency
• administrative efficiency

One key issue relates to the administrative
efficiency of separating (or integrating) the
collection of health insurance premiums from the
collection of general taxes or a broader array of
payroll taxes. Much more work is needed to
unravel this issue and ensure that the
transaction cost of change does not exceed the
potential gains.
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Methods of distributing funds prospectively
between plans

• according to the size of bids from the plans
• based on political negotiation
• according to historical precedent and
• based on some independent measure of health care
  needs.

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or Capitation
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How can resources be allocated prospectively?

• Political Decision

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Financial Instruments

• TF
• SI
• UC
• PI
• Medical saving account

• Capitation
• Sickness fund
• Commonwealth fund
• Grants
• Loans
• Donations

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Thank you