STRATEGY ON HEALTH CARE FINANCING for Countries of the Western Pacific and South-East Asia Regions (2006–2010)
World Health Organization Western Pacific Region South-East Asia Region
WHO Library Cataloguing-in-Publication Data Strategy on health care financing for countries of the Western Pacific and South-East Asia Regions (2006-2010).
1. Delivery of health care - economics. 2. Financing, Government. 3. Health care reform. 4. Health care economics and organizations. 5. Insurance, Health. 6. Health policy. 7. Asia, Southeastern. 8. Western Pacific. I. World Health Organization. Regional Office for South-East Asia. II. World Health Organization. Regional Office for the Western Pacific.
ISBN 92 9061 210 X
(NLM classification: WA 525)
© World Health Organization 2005 All rights reserved. The designations employed and the presentation of the material in this publication do not imply the expression of any opinion whatsoever on the part of the World Health Organization concerning the legal status of any country, territory, city or area or of its authorities, or concerning the delimitation of its frontiers or boundaries. Dotted lines on maps represent approximate border lines for which there may not yet be full agreement. The mention of specific companies or of certain manufacturers’ products does not imply that they are endorsed or recommended by the World Health Organization in preference to others of a similar nature that are not mentioned. Errors and omissions excepted, the names of proprietary products are distinguished by initial capital letters. The World Health Organization does not warrant that the information contained in this publication is complete and correct and shall not be liable for any damages incurred as a result of its use. Publications of the World Health Organization can be obtained from Marketing and Dissemination, World Health Organization, 20 Avenue Appia, 1211 Geneva 27, Switzerland (tel: +41 22 791 2476; fax: +41 22 791 4857; email: bookorders@who.int). Requests for permission to reproduce WHO publications, in part or in whole, or to translate them – whether for sale or for noncommercial distribution – should be addressed to Publications, at the above address (fax: +41 22 791 4806; email: permissions@who.int). For joint WHO SouthEast Asia and Western Pacific Regional Publications, request for permission to reproduce should be addressed either to (a) WHO Regional Office for South-East Asia, World Health House, Indraprastha Estate, New Delhi 110002, India or (b) Publications Office, World Health Organization, Regional Office for the Western Pacific, P.O. Box 2932, 1000, Manila, Philippines, Fax. No. (632) 521-1036, email: publications@wpro.who.int
CONTENTS Acronyms ................................................................................. 4 Executive summary .................................................................. 5 I. Background ....................................................................... 7
II. Strategy for Health Care Financing ................................... 11 III. Implementation of Health Care Financing Strategy ........... 29 Glossary of Technical Terms ................................................... 30
ACRONYMS ADB ARV CBHI CEA CMH DRG GATS GDP/GNP HCF ILO MDG MTEF NHA OECD PPP PRSP SDH SEAR SEARO SHI TRIPS WPRO WTO Asian Development Bank Antiretroviral medicines Community-based health insurance Cost-effectiveness analysis Commission on Macroeconomics and Health of WHO Diagnosis-related groups General Agreement on Trade in Services Gross domestic product/gross national product Health care financing International Labour Organization Millennium Development Goals Medium-term expenditure frameworks National health accounts Organ ization for Econ omi c Cooperation an d Development Purchasing Power Parity Poverty reduction strategy papers Social determinants of health South-East Asia Region Regional Office for South-East Asia Social health insurance Trade Related Aspects of Intellectual Property Rights Regional Office for the Western Pacific World Trade Organization
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EXECUTIVE SUMMARY Supporting adequate, sustainable, equitable and effective health financing to improve health outcomes is one of the most important goals of the World Health Organization. The Executive Board of WHO and the Fifty-eighth World Health Assembly have discussed and provided strategic directions on sustainable health financing, universal coverage and social health insurance.1 The Strategy on Health Care Financing for Countries of the Western Pacific and South-East Asia Regions (2006–2010) is intended to translate this important policy direction into regional, national and subnational actions. The strategy aims to provide operational and practical guidance to Member States in improving overall health care financing policy development to achieve adequate, stable and effective health financing that provides equitable access to health services of assured quality. The strategy is closely linked with broader health system and sector development issues. The WHO functional framework for health system financing is used to address health care financing issues and challenges together with international health and development goals. The strategy reflects the main findings and recommendations from international, regional and country-specific experiences, available evidence, regional and biregional meetings and consultations on health care financing. The strategy contains “issues and challenges”, “main policy objectives” and “actions” by Member States and WHO in the following areas: n n STRATEGY ON HEALTH CARE FINANCING for Countries of the Western Pacific and SouthEast Asia Regions
5
n
n
n
n
n
increasing investment and public spending on health; achieving universal coverage and strengthening social safety nets; developing prepayment schemes, including social health insurance; supporting the national and international health and development process; strengthening regulatory frameworks and functional interventions; improving evidence for health financing policy development and implementation; and monitoring and evaluation.
1
115th Executive Board session on 24 January 2005 has adopted resolution EB115.R13 on sustainable health financing, universal coverage and social health insurance. This topic was included in the agenda of the Fifty-eighth World Health Assembly held in May 2005.
EXECUTIVE SUMMARY
The attainment of the main policy objectives and strategies requires coherent actions to be taken by Member States, together with WHO Headquarters, regional offices and country offices and in close collaboration with national and international counterparts. The implementation of the HCF strategy will support health financing reforms in Member States with the following focus: n n n n n n
stable revenue levels over the medium to long term; financial sustainability of priority health programmes; reduction in out-of-pocket funding for health; removal of financial barriers to seeking care; equity in service access and contributions; and efficiency and effectiveness of resource allocation and use of health services of an acceptable quality.
STRATEGY ON HEALTH CARE FINANCING for Countries of the Western Pacific and SouthEast Asia Regions
The following steps are proposed to translate the strategy into country-specific socioeconomic situations: n
6 n
n
Use the strategy as a framework for developing and improving national policies and strategies on health care financing for 2006-2010 where appropriate. Incorporate the strategy into short- and medium-term national socioeconomic development plans and actions at the national and subnational levels. Collaborate with all stakeholders and development partners at the country and intercountry levels on formulating and implementing health care financing strategic actions.
It is expected that the strategy will facilitate policy dialogue on health care financing both at the regional and country levels. The strategy will guide WHO’s technical support and collaboration with the Member States in the area of health financing and create synergies with all other WHO collaborative efforts for improving public health.
BACKGROUND
I
Stable and sustainable health financing is considered an essential component for achieving important population health goals. Appropriately arranged health care financing (HCF) helps governments mobilize adequate financial resources for health, allocate them rationally, and use them equitably and effectively. Equitable and pro-poor health financing policies promote universal access to the most needed health services. They also contribute to social protection and strengthen the social safety nets in rapidly changing socioeconomic environments. In such broad context, HCF contributes to the overall social and economic development process. Health care is becoming more expensive both in developed and developing countries. The excessive use of medical services with a high technological input is one of the leading factors of health care cost increases in the Asia and Pacific region. The broad application of service fees and poor management of resources and services are the other major factors driving costs in developing countries. The lack of public financing has led to cost recovery, which broadly promotes the charging of user fees at public health facilities. In some countries and areas, user fees are being used as a policy tool to strengthen the role of market forces in the health sector. Some health sector reform measures support the private sector’s role in the financing and provision of health services, including privatization of public health facilities. Through supply-side initiatives, certain medical services and products such as minor surgery, high technology diagnostic services and pharmaceuticals have been extensively provided at full or partial cost to patients. The management of chronic and noncommunicable diseases is a common concern in both the South-East Asia and Western Pacific Regions of the World Health Organization. Long treatment periods and the severity of complications lead to high treatment costs. These costs are a burden to individual patients and the health sector.
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Pacific island countries and areas spend considerable parts of their budgets on the overseas treatment of chronic diseases, which is not always justified in terms of health benefits. Future health spending can be significantly reduced through effective health prevention and promotion measures. The share of private financing in total health care spending in the Asia-Pacific region has significantly increased in the past two decades, mainly due to out-of-pocket payments. Numerous studies have shown that out-of-pocket payment is an inequitable and inefficient way of mobilizing resources for health services. There is considerable data that low-income families spend a higher percentage of their income on health compared to highincome households. Even modestly charged service fees may lead to catastrophic expenses 2 if the frequency of service use is sufficiently high. High level of out-of-pocket health spending by the households is recognized as one of the main causes of poverty. Low-income populations often stretch all financial resources, including the disposal of their productive assets, to pay for much-needed health care. But the majority still cannot afford the ever-increasing user charges. Ill health pushes a rising number of people who cannot afford the costs of health care into poverty. There are large disparities in the health status and care-seeking behaviour between rich and poor, between genders, as well as between urban and rural populations. The poor have significantly poorer health status and they are more dependent on public financing for health. It was estimated that a 1% increase in public financing on health reduces child mortality among the poor by twice as much compared with the non-poor.3 There is growing interest in assessing various health financing arrangements relative to health outcomes, population access, equity in financing and service coverage. In response to this demand, The World Health Report 2000 - Health Systems: Improving Performance provided a functional framework for health system financing. The 115th session of the Executive Board and the Fifty-eighth World Health Assembly have discussed and endorsed a resolution on sustainable health financing, universal coverage and social health insurance.4 Without doubt, a health system in which individuals have to pay out of their own pockets at time of illness creates equity concern. It promotes exclusion of the poorest members of the society from the use of health services, restricting access to only those that can afford the fees. In contrast, a health system predominantly funded by public sources including general taxes and social health insurance provides good and equitable access by all to basic
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2 3 4
Catastrophic spending is defined as being 40% or more of a household’s effective income, net of subsistence expenditure. Health Sector Reform and Reproductive Health. WHO Web Page Overview, 2004. Resolutions EB115.R13 and WHA58.33.
health services. In effect, health risks and corresponding funds are pooled together to serve as a safety net for the members, thus avoiding the need to pay at time of use or illness. These types of prepayment-based financing arrangements separate payment from utilization, reduce the undue financial burdens and contain the costs of health services. The table below describes the main issues and challenges in different socioeconomic settings with varying degree of out-ofpocket payments in total health spending.
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The WHO Regional Office for the Western Pacific (WPRO) and the Regional Office for South- East Asia (SEARO) have taken the initiative to develop a strategy to address region-specific HCF issues. The strategy focuses on selected interventions with potential impact on population health. The diagram below summarizes the framework of the strategy. The challenges, main causes and major consequences are based on extensively documented national, regional and global data. The strategy intends to support countryspecific HCF policy and reform debates for addressing these issues effectively.
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STRATEGY FOR HEALTH CARE FINANCING
II
The strategy contains “issues and challenges”, “main policy objectives”, and “actions” by Member States and WHO in the following areas: (1) Increasing investment and public spending on health STRATEGY ON HEALTH CARE FINANCING for Countries of the Western Pacific and SouthEast Asia Regions
Most countries in the Western Pacific and the South-East Asia Regions rely on a mixture of government budget, health insurance, external funding and private sources including nongovernmental arrangements and out of pocket payments. Despite the variety of financing sources, the level of health spending in both regions is relatively low. Many countries and areas spend less than 5% of their gross domestic product (GDP)5 on health and per capita health spending is much lower than $35 per person per year.6 In a number of countries and areas the share of government spending on health has been decreasing in the last 10–20 years7 not necessarily due to budget cuts per se but due to out-of-pocket spending increasing at a much faster pace. Lack of financial resources for health is only half of the problem. The significant proportion of the limited and inadequate funding for health is often spent on illness rather than health. Currently, many countries and areas are struggling to enhance and maintain the role of their government in funding and providing services with public health significance.8
11
5
6
7 8
How Much Should Countries Spend on Health? W. Savedoff, 2003, WHO Health Financing Technical Brief. Note that WHO has never adopted a recommended level of health spending although various citations have taken 5% of GDP as a rule-of-thumb benchmark level of spending needed for an essential package of health services. Macroeconomics and Health: Investing in Health for Economic Development, Geneva, WHO, 2001. This is a benchmark cost of a basic package of services, which a population should be entitled. Regional data bank. Services refer to the WHO proposed essential public health functions as outlined in Regional Committee resolution WPR/RC53.R7.
Box 1: Target level of government spending on health The Commission on Macroeconomics and Health of WHO (CMH), in its inaugural 2001 report, recommended “low- and middle-income” countries to mobilize an additional 1% of the GNP for health by 2007 and 2% by 2015.
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Strategies elaborated under this area focus on comprehensive national policies on HCF, formulating solutions for inadequate funding, improving efficiency and effectiveness of resource use, ascertaining financial sustainability, and building capacity for better resource administration and management.
Actions by Member States n
n
n
n
n
n
n n
n
Increase budgetary spending for health by 1% of GNP by 2007 and 2 % of GNP by 2015 compared with current levels of spending in low- and middle-income countries. Analyse country health, social and development situation to set strategic priorities for increased health investments. Analyse public financing for key public health programmes in terms of geographical access and service utilization by population groups. Evaluate the financial impact of proposed health policies as a regular government activity. Formulate HCF policies to address financial constraints and organizational weaknesses in delivering services. Develop plans for gradually replacing donor funding with stable domestic resources. Increase spending on public health at peripheral levels. Evaluate the impact of tobacco and alcohol taxes for health care financing. Establish coherent and accountable mechanisms through various technical programmes.
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Actions by WHO n
n
Encourage Member States to develop HCF policies and strategies. Support countries in: n assessing the financial implications of national health policies; n analysis for resource needs, expenditures and revenue projections; and n technical support in training national experts and decision-makers on HCF policy.
(2)
Achieving universal coverage and strengthening social safety nets
Universal coverage constitutes a central area of WHO policy advocacy. It is defined as access to key health promotion, preventive, curative and rehabilitative health interventions for all at an affordable cost.9 Universal coverage creates equity in access. On the other hand, economic constraints limit the amount of health care available to a population. Public funding, often in the form of general taxes along with a combination of social health insurance (SHI) premiums, community based financing and other prepayment schemes is an effective mechanism to reach universal coverage. Box 2: Regional helath care financing profile The latest NHA data are used to sketch a profile of the Western Pacific and South East-Asia Regions. The graph below plots total amount spent on health expressed as percent of GDP and how much of this total is funded from out of pocket payments.
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Universal coverage has been achieved among developed and some developing Member States of the regions such as Australia, Japan, the Republic of Korea, Mongolia, New Zealand and Thailand through a mixture of general and earmarked taxation, social and private health insurance. China, Indonesia, the Lao People’s Democratic Republic, the Philippines and Viet Nam have introduced social health insurance although the major challenge remains to extend health insurance coverage to the informal sector, which accounts for the majority of the population. Universal coverage is also promoted by establishing social safety nets for health, predominantly through taxation, by targeting the vulnerable and low-income populations. A combination of user fee exemption mechanisms and the distribution of free health cards to eligible poor have been experimented with in Indonesia and Viet Nam. 9
Resolution WHA58.20.
The strategies elaborated below predominantly focus on establishing universal guarantees for essential health interventions for all citizens and gradually improving the depth of health benefits available to the population. As a minimum, universal coverage guarantees an entitlement to needed health services to all citizens and provides a risk protection mechanism, such as a safety net, against catastrophic health spending of the poor and vulnerable.
Actions by Member States n
n
n
n
n n
Target population segments with the greatest health needs for public funding. Assess population health status, health service provision, health priorities and investment needs. Define the content and costs of essential public health interventions.10 Develop and implement a basic package of health care services. Promote universal coverage and establish social safety nets. Provide higher subsidies to health facilities, which provide health services to the poor and vulnerable.
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Actions by WHO n
n
n
n
Promote the concept of essential public health functions and services. Support national and international meetings to disseminate best practice and evidence. Promote active policy dialogue with other ministries, international development agencies, donor communities and the legislative bodies. Support studies on universal coverage and social safety nets.
10
WHO aims to provide the best available evidence on cost-effective health interventions to assist the Member States to define and implement country-specific essential health interventions or packages that maximize health with a given set of resources.
(3)
Developing prepayment schemes, including social health insurance
Prepayment is one of the most important determinants of sustainable health care financing. Based on the concept of social solidarity, prepayment schemes contribute to equity goals because of their risk sharing and fund pooling potential. There is potential to translate out-of-pocket health expenditures into prepayment schemes. Social health insurance (SHI) is one of them. It differs from private health insurance where contributions are often directly related to the risk of ill health of the person being covered. Clearly there is no single answer to whether one insurance model suits all countries and areas. The Asia-Pacific region has good experience and evidence that SHI is a sustainable HCF option. As part of a broader social security development strategy, SHI schemes with an integral health insurance arm can provide greater financial protection and equitable access to health services. Strategies elaborated under this area focus on institutional strengthening of prepayment schemes, including community based health insurance (CBHI) and SHI. Institutionalization of SHI requires well-defined time frames and coordinated actions. CBHI schemes can be implemented as an integral part and an interim step to translate out-of-pocket payments into prepayment. The capacity-building activities include general scheme design, benefits package, member registration, premium setting, revenue collection, risk and fund pooling between regional and community-based sickness funds, contracting, provider payment methods, and social marketing. These issues are fairly complex and therefore WHO’s strategic standpoint is to support these initiatives, engineer more international cooperation both technically and financially, and provide advice on SHI to the Member States.
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Actions by Member States n n n n
Define a consensus-based process with key stakeholders. Develop and refine HCF policy for prepayment and SHI. Undertake capacity assessment. Establish clear lines of responsibilities.
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n
n n
n
Build human and institutional capacity to manage prepayment schemes and SHI. Share and disseminate information. Make realistic plans to expand coverage of existing programmes. Pilot prepayment and SHI schemes.
Actions by WHO n Provide technical assistance in developing prepayment schemes and SHI, including policy, legislation and implementation. n Disseminate information among countries and regions. n Collaborate with national and international partners for establishing prepayment schemes and SHI. n Provide capacity-building to Member States. n Support implementation of pilot schemes.
(4)
Supporting the national and international health and development process
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Health status is highly correlated with macroeconomic indicators such as income, working conditions, unemployment, poverty and environmental factors. The regional economies are directly affected by increased globalization and foreign direct investment, while some Member States are in talks to join the World Trade Organization (WTO). Most macroeconomic issues that deal with investment, job creation and economic growth occupy national policy and reform agendas. Social and human investments in improving health, gender equity, education and the empowerment of women also help the populations make better health decisions and therefore yield higher long-term economic growth. The Commission on Macroeconomics and Health (CMH) has portrayed how investing in health can improve the health of the poor and contribute to economic growth and development. Furthermore, the Millennium Development Goals (MDG), the World Bank’s initiatives on Poverty Reduction Strategy Papers (PRSP) and Medium-Term Expenditure Frameworks (MTEF), which span three to five years, have direct impact on achieving health improvements among the poor and vulnerable. WHO aims to capitalize on these multisectoral, multi-agency and multi-party strategic actions that need to continue between 2006 and 2010 with due attention given to health financing. The strategies proposed herewith focus on advocating and implementing the globally publicized work of WHO in conjunction with the work of other United Nations agencies and international development partners in promoting macroeconomic, social and human development and growth, and the attainment of major international development goals.
Actions by Member States n
n
n
n
n n
Increase awareness about the links between economic development and health. I mp r o v e c o o r d i n a t i o n a m o n g na t io n a l a g e n c i e s (ministries of health, finance and trade, labour and social security, as well as social insurance agencies and legislative bodies.) Develop pa rt nerships with inter national donor, governmental and nongovernmental agencies. Formulate policies and assess their financial impact for reduction of morbidity and mortality among the poor and disadvantaged. Promote HCF debates. Build accountability channels between the legislative and executive branches, decision-makers, health care providers and consumers.
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Actions by WHO n
n
n
n
n
Support country level work towards attainment of health and development goals. Promote policy dialogue and advocate the Millennium Development agenda. Support development of national expertise through policy orientation meetings and seminars on HCF policies. Collaborate with donors for grant assistance and borrowing. Facilitate collaboration among national agencies and international development partners.
n
n
n n
n
Promote bilateral talks among regional members on trade and health. Assist countries in understanding the implications of TRIPS and GATS. Conduct analytical reviews and share country experiences. Organ ize meetings and policy debates for pol icy formulation. Support small-scale pilot projects on economic gains of health investments.
Box 3: Health financing and the Millennium Development Goals MILLENNIUM DEVELOPMENT GOALS 1. Eradicate extreme poverty and hunger 2. Achieve universal primary education 3. Promote gender equality and empower women 4. Reduce child mortality 5. Improve maternal health 6. Combat HIV/AIDS, malaria and other diseases 7. Ensure environmental sustainability 8. Develop a global partnership for development Three out of eight MDG are directly related to health. The first goal on “eradication of extreme poverty and hunger” is of particular importance due to its close link with health financing. Ill health is one of the reasons of poverty and the poor populations have lower health status. The vicious circle in the relationship between health and poverty has been evidenced with catastrophically high health expenditures causing poverty or pushing poor people further into it.
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Source: United Nations Development Programme
(5)
Strengthening regulatory frameworks and functional interventions
The core functions of health financing are collecting revenue, pooling resources and purchasing health services.11 Most Member States have a fragmented set of administrative structures for collecting revenue, pooling resources and purchasing, all of which require better coordination and regulatory oversight. In some countries social security agencies directly collect payroll taxes, whereas in others the tax collection agencies allocate budgets for health insurance. A social safety net for the poor funded out of general taxes and a health insurance fund administered by a parastatal social insurance agency don’t always pool risks. Sometimes each agency applies different types of payment methods and different contracting methods with the same health care providers. 11
The World Health Report 2000 - Health Systems: Improving Performance.
Efficient and effective HCF systems constitute a good basis for functionally strong and transparent health systems. Coherent actions of ministries of finance and trade that are currently evaluating or implementing TRIPS and GATS of the World Trade Organization and other independent bodies regulating public and private health sector are required for strengthening health systems.
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The strategic interventions discussed in this section aim to address these complexities and expand on regional and international experiments in best practices as they fit the needs of the Member States. They aim to improve the efficiency of health financing, predominantly at provider level, focusing on hospital sector reform programmes and the financing of pharmaceuticals. Actions by Member States n Strengthen regulations of public and private medical and pharmaceutical practice. n Strengthen regulatory mechanisms for private health insurance and managed care. n Build local skills for setting health priorities. n Improve risk pooling by avoiding fragmentation. n Ensure greater cross-subsidies from rich regions to poor. n Develop accountable and transparent resource allocation mechanisms.
STRATEGY ON HEALTH CARE FINANCING for Countries of the Western Pacific and SouthEast Asia Regions
n
22
n
n
n
n
Assess user fee policy at public and private health facilities. Improve health budgets by employing realistic estimation techniques and activity-based programme budgeting. Review salary systems for health staf f and pilot performance-based payments by linking incentives to service quality. Pilot capitation, case-based and activity-based budget payment methods through which the beneficiary receives complete health coverage for a broad range of health services. Improve capital planning on expensive medical equipment, construction and extension of hospitals.
Actions by WHO n Support HCF legislation and regulatory framework development. n Provide policy options and technical assistance for improved fund pooling. n Collect, develop and disseminate best practices in legislative and regulatory frameworks. n Develop appropriate tools and techniques for budgeting, financial planning, and management in collaboration with development partners. n Exchange country experiences and best practices from different socio-economic settings. n Train national experts through training courses.
(6)
Improving evidence for health financing policy development and implementation
Reliable information on HCF is important for effective health policy formulation, implementation and monitoring. The mobilization, allocation and use of financial resources affect the population. The same level of health can be achieved at considerably different costs. National health accounts (NHA) aim to help countries improve their data and information on how much the entire nation is spending on health care, what goods and services are being delivered, and who is paying for the services. NHA is fast becoming the tool for monitoring resource flows for disease specific programmes such as HIV/AIDS. It also provides a basis for tracking external and domestic resources contributed to the health sector in support of national health policies. Box 4: National health accounts Policies on optimal financing, expenditure rationing, allocating, using resources, and choosing cost-effective interventions require good accounting and reporting systems. NHA is an internationally accepted tool for collecting, cataloguing and estimating financial flows through the health system. There is growing interest in NHA among all Member States. As shown in the diagram, NHA is well established in a number of countries across all WHO regions. NHA collaboration in the Western Pacific Region and the South-East Asia Region is also streamlined by the Asia and Pacific NHA Network (APNHAN). Following the publication of A System of Health Accounts by the Organization for Economic Cooperation and Development (OECD), WHO and partner agencies have launched the Guide to Producing NHA in 2003.
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There is increased awareness among policy and decisionmakers that HCF reform pursued with timely, accurate and routinely updated information produces more desirable results. Appropriate HCF functions help the health system to achieve better health gain from a given set of resources. Evidence from costeffectiveness studies also assists policy-makers in setting priorities for health investments. Currently comprehensive, accurate and reliable information is limited in the Asia-Pacific region. A big gap exists between
countries and areas in terms of data availability, comparability, information source, scope, data collection methodology, presentation, and use for policy formulation, implementation and monitoring. Some country reports narrowly focus only on public health spending sourced from central and local government budgets. It is an incomplete exercise to analyse national health financing which excludes other nongovernmental and private, especially out-of-pocket, health expenditures. Even in places where health services are supposedly free, patients frequently make substantial official and unofficial payments. The strategies covered under this area aim to strengthen country level health finance information production capacity and its use for health policy and reform. The strategy emphasizes internationally accepted national health accounting standards, classifications and guides aimed to help countries and areas to improve their data and information on health expenditure and financing.
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Actions by Member States n n
n n n
n
n
Build national analytical skills for production of HCF data. Promote collaboration between decision makers in the political and clin ical environment and academic researchers. Define clear policy research questions. Identify implementation mechanisms. Improve NHA awareness and advocate their use as a policy tool through meetings and training seminars. Build capacity for institutionalization of annual NHA production. Undertake CEA studies for determining health priorities, investment planning and targeted health spending.
Actions by WHO n
n
n
n
Provide evidence-based policy options, research findings, recommendations and guidance in collaboration with development partners. Support studies on cost-effectiveness, household health spending, poverty and provider payment methods. Build local capacity to analyze national health survey data with proper analytical tools. Assist the lead agencies that produce NHA on specific technical areas n n n n n n
methodology development; standard definitions; accounting methods; data sources; matrix display options; and estimation methods.
n
n
Share NHA information at global, regional, inter-country levels. Eva lua te feasibility of sett ing up health system observatories in the region.
(7)
Monitoring and evaluation
STRATEGY ON HEALTH CARE FINANCING for Countries of the Western Pacific and SouthEast Asia Regions
Implementation of health financing policies and actions advocated and discussed in the strategy need to be monitored and evaluated at regular intervals. This exercise is needed for building more evidence for future policy and for the assessment of whether the policy objectives discussed in the strategy have achieved the expected results. Monitoring and evaluation strategies contribute to the assessment of MDG, CMH and other national and international development goals. The evidence will be useful for better targeting of donor action on MDG. The amount of investments in health, which various strategies have addressed, is expected to increase. Likewise, the attainment of universal coverage of essential health services, as well as the population covered by SHI and other prepayment schemes such as CBHI, should be monitored. On the expenditure front, the reduction in the share of out-of-pocket funding for health also needs to be monitored. The strategies proposed are expected to evaluate and monitor the increase of investment in health, attainment of universal coverage of essential health services, the percentage of the population covered by prepayment financing schemes, the reduction in share of out-of-pocket funding and other strategic interventions.
25
Actions by Member States STRATEGY ON HEALTH CARE FINANCING for Countries of the Western Pacific and SouthEast Asia Regions
n n n n n n
26 n
n
n n
n n
Set feasible targets for improving HCF. Develop indicators for monitoring and evaluation. Strengthen existing monitoring and evaluation system. Produce baseline data. Conduct evaluation studies. Hold public debates by bringing together academic, administrative, health finance experts and economists. Monitor rapid increases of health care costs and undertake effective cost-containment measures. Apply economic evaluation for priority setting and maximization of health gains. Reduce inequities and financial burdens on households. Monitor catastrophic health expenditure and reduce proportion of direct out-of-pocket payments in total health care expenditure. Undertake public expenditure reviews. Develop MTEF, PRSP and action plans for TRIPS and GATS.
Actions by WHO n n n
n
Regularly conduct situation analyses. Build capacity to plan, use and monitor health resources. Provide technical support to monitor out-of-pocket payments, economic and financial analyses of health interventions. Assist analytical review of different HCF policy options, formulation of new policies and organization of policy debates.
n
n
n n
Share HCF experiences, policy analysis and lessons learned among Member States. Facilitate intersectoral dialogues, meetings, and coordination of internal and external resources and targeted health investments. Support health system research activities. Monitor and evaluate the impact of HCF reforms.
The following tables provide information and guidance to develop country-specific indicators and feasible targets to improve monitoring and evaluation of HCF policies and reforms in the regions.
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Within the strategy, countries are encouraged to set up feasible targets for improving country-level HCF. These need to be incorporated into the national level investment plans and for scaling up the necessary interventions which suit to the needs 12
Poverty gap ratio is the mean distance separating the population from the poverty line (with the non-poor being given a distance of zero), expressed as a percentage of the poverty line.
of each Member State. The strategy proposes the following targets in core HCF focus areas outlined in this document.
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The following indicators are proposed for monitoring the progress on the implementation of HCF strategy at the regional level.
IMPLEMENTATION OF HEALTH CARE FINANCING STRATEGY
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The attainment of the main policy objectives and strategies requires coherent actions to be taken by Member States, together with WHO Headquarters, regional offices, and country offices. The implementation of HCF strategy will support health financing reforms in the Member States with the following focus: n n n n n n
Stable level of revenue over medium to long term. Financial sustainability of priority health programmes. Reduction in out-of-pocket funding for health. Removal of financial barriers to seeking care. Equity in service access and contributions. Efficiency and effectiveness of resource allocation and use of health services of an acceptable quality.
STRATEGY ON HEALTH CARE FINANCING for Countries of the Western Pacific and SouthEast Asia Regions
There is no single model that addresses all these issues, therefore the strategy proposes a well-balanced mix of financing arrangements in revenue collection, resource pooling, allocation and purchasing health services. Appropriate and diligently formulated health financing policies will help the proposed strategies to be implemented at regional, national, and sub-national levels according to the needs and socio-economic situation in each Member State. Improvements in the health financing system will also improve accountability and transparency of the use of public funds to respond to the health care needs of the citizens. The following steps are proposed to translate the strategy into country-specific socioeconomic situations: n
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Use the strategy as a framework for developing and improving national policies and strategies on health care financing for 2006-2010 where appropriate. Incorporate the strategy into short- and medium-term national socioeconomic development plans and actions at the national and subnational level. Collaborate with all stakeholders and development partners at country, intercountry levels on formulating and implementing health care financing strategic actions.
GLOSSARY OF TECHNICAL TERMS Adverse selection The tendency of purchasing health insurance benefit packages by individuals with high health risk affecting health expenditure increases more than people with low health risk. A minimum set of services that are offered to an insured person within a level of contributions. Cost of inputs whose useful life is usually longer than one year. In terms of health investments, refers to expenditure on physical assets such as hospitals, beds, health centres, medical and diagnostic plant and equipment, etc. A fixed payment to a service provider, calculated for each listed or enrolled person per period of time. Specified amount paid periodically to health provider for a group of specified health services, regardless of quantity rendered. A situation where a household spends on health more than 40% of its income after paying for subsistence needs, e.g. food. It can be caused by catastrophic illness, either high cost but low frequency event or by low cost and high frequency events. Setting insurance rates based on the average cost of providing health services to all people in a geographical area, without adjusting for each individual’s medical history or likelihood of using medical services. With community ratings, premiums do not vary for different groups of subscribers or with such variables as the group’s claims experience, age, sex or health status. The intent of a community rating is to spread the cost of illness evenly over all subscribers rather than charging the sick more than the healthy for coverage. The process in which a legal agreement between a payer and a subscribing group or individual such as purchasers, insurers, takes place which specifies rates, performance covenants, the relationship among the parties, schedule of benefits and other pertinent conditions. This terminology is often used for social security systems where members regularly contribute to a particular social security scheme in order to have clearly defined social benefits such as old age pension, health services, maternity allowance and other monetary allowance in the event of disability or death. Noncontributory social security scheme refers to social assistance programmes as well as services funded directly by the state budget or other public sources.
Benefit package
Capital cost, capital expenditure
Capitation payment
STRATEGY ON HEALTH CARE FINANCING for Countries of the Western Pacific and SouthEast Asia Regions
Catastrophic health expenditure
Community rating
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Contracting
Contributory scheme
Co-payment Cost
A fixed amount of payment, which must be paid by a beneficiary for each service at time of service use. Resources in monetary terms expended in carrying out activities. Average cost: Total costs divided by total units of output. Direct cost: A cost, which is related directly to a particular activity or product. Economic cost: Expenditure, expressed in monetary term for all resources, consumed in a direct and indirect form. Economic cost a broader term. Financial cost: Expenditure, expressed in monetary term for items actually consumed during a specific period of time to deliver services. Fixed cost: Cost of inputs, which remains stable with increase of output unit number. Incremental cost: Costs of new activity parts of which already exists. Indirect cost or overheads: Expenses associated with utilities, administration, and supervision. Marginal cost: The amount at any given volume of output by which aggregate costs are changed if the volume of output is increased or decreased by one unit. Opportunity cost: The maximum amount, which could be obtained at any given point of time if assets or resources were to be sold, hired or put to the most valuable alternative use. Recurrent cost: Costs of inputs whose useful life is less than one year. Replacement cost: The cost of replacing a machine or other asset at any given point of time, either now or in the future. Semi-fixed cost: Cost of inputs, which increases step wise in relation to output unit increase. Unit cost: The cost of a single unit of output, such as cost per out patient visit or hospital bed. Variable cost: Cost of inputs, which changes in linear relation to output unit number.
STRATEGY ON HEALTH CARE FINANCING for Countries of the Western Pacific and SouthEast Asia Regions
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Cost-benefit analysis
A form of economic evaluation where all costs and consequences are expressed in money terms. It enables to assess whether a particular objective is worth achieving. A set of measures to control or reduce waste of resources in allocation, to stop costs from rising, to reduce the cost in real terms, to prevent costs from rising faster the national resources, e.g. GDP. Cost containment policy measures may differ: budget ceilings or use of fixed budget control on staff numbers, control on prices of goods and services control on quantity of goods control on financial incentives e.g. restrictions on sale or promotion of drugs by doctors control on construction and extension of hospitals control on over-utilization of expensive medical equipment control on medical school admission and specialist training
Cost containment
Cost-effectiveness analysis STRATEGY ON HEALTH CARE FINANCING for Countries of the Western Pacific and SouthEast Asia Regions
A form of economic evaluation where costs are expressed in money terms but consequences are expressed in physical units. It is used to compare different ways of achieving the same objective. Term refers to public goods and services with a meaning of shifting financial burden from taxpayers to those who benefit them. A full or partial cost of providing goods and services can be recovered with a price, which does not include the profit. Term refers to any direct payment made by users of services to providers of those goods and services. Commonly used method on demand side. The techniques and processes of ascertaining the expenditures the amount of expenditure incurred on particular products and services. Total value of borrowings of an entity such as a sovereign country or a firm, which constitutes a liability of the entity, measured at a given point in time. Transfer of administrative power from a central to a local authority. Also referred as “devolution of power”. The level of consumption preferred by consumers at different prices. Increased role and responsibility of a local authority over health service organization and HCF (see also: decentralization).
Cost recovery
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Cost sharing
Costing
Debt stock
Decentralization
Demand
Devolution
Diagnosis-related groups (DRG)
Groups of similar medical diagnosis for which payments can be made to providers for services undertaken. Each group has a set fixed rate attached to it and accordingly, a provider receives the fixed fee per patient episode regardless of the cost of the treatment. The revenue is linearly related to the number of admissions, but not to the volume of services provided or the length of stay. The fixed payment encourages hospitals to eliminate unnecessary services, to specialize in the types of care they do best and reduce complications, e.g. hospital acquired infections as these add to costs without generating revenue. Contribution dedicated to health or particular function. Earmarked taxes sometimes reduce flexibility over time in allocating public funds to the best possible use. It may also reduce accountability of agencies to which funds are allocated when those revenues are determined by factors independent of the number or quality of services provided. A reduction in average cost per unit as output increases. It occurs where fixed costs in a production process are high. The effect of the activity and the end results, outcomes or benefits for the population achieved in relation to the stated objectives. It is an expression of desired effect of programme, service intervention in reducing a health problem or improving an unsatisfactory health situation. The effect or end results achieved in relation to the effort expended in terms of money, resources and time. Technical efficiency: The production of the greatest amount or quality of outcome for any specified level of resources. Allocative efficiency: An allocation of the mix of resources for maximal benefit, i.e. such that no change in spending priorities could improve the overall welfare.
Earmarked tax
Economies of scale
Effectiveness
STRATEGY ON HEALTH CARE FINANCING for Countries of the Western Pacific and SouthEast Asia Regions
Efficiency
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Equity
The absence of systematic disparities in health between social groups who have different levels of underlying social advantage or disadvantage - that is, different positions in a social hierarchy. Inequities in health systematically put groups of people who are already socially disadvantaged such as by virtue of being poor, female, and/or members of a disenfranchised racial, ethnic, or religious group at further disadvantage with respect to their health. Horizontal equity: Equal payment for households in the same circumstances such as the same income. Vertical equity: Persons with greater need should be treated more favourably than others. The extent to which unequal households pay unequal share.
Fair financing
A way health care is financed is perfectly fair if the ratio of total health contribution to total non-food spending is identical for all households, independently of their income, their health status and their use of health services. Payments to a provider for each item or services provided. Regular and supplementary income, cash, savings, loans, gifts, regular remittances or pensions, and other financial instruments. Investment by firm based in one country in actual productive capacity or other real assets in another country, normally through creation of a subsidiary by a multinational corporation. Used as a measure of globalization of capital. Effects on growth and inequality in developing countries disputed. Enterprises, which are registered and licensed to conduct business and whose employees earn regular salaries and wages. The core functions of health financing are: collecting revenue, pooling of resources and purchasing: n
Fee for service Financial assets
Foreign direct investment (FDI)
Formal sector
Functions of health care financing STRATEGY ON HEALTH CARE FINANCING for Countries of the Western Pacific and SouthEast Asia Regions
Collecting revenue: is the process by which health systems receive money from households, companies and institutions as well as from donors. Various ways of collecting revenues are general taxation, social health insurance, private health insurance, out-of-pocket payments and grant and charitable donations and multilateral borrowing. Pooling of resources: the process of accumulation and management of revenues to ensure that the risk of having to pay for health care is borne by all the members of the pool and not by each contributor individually. Various forms of tax and social health insurance schemes aiming at sharing the financial risk and funds among the contributing members are the main focus of this function. Purchasing: of health services is the process by which the most needed and effective health interventions are chosen and provided in an efficient and equitable manner, and the providers are paid appropriately from the pooled financial resources for delivering defined sets of services and interventions. Purchasing has three interwoven elements; “allocating financial resources”, establishing “provider payment options” and “contracting” with providers.
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Funders
Organizations contributing to the coverage of health care expenditures or providing the funding for health care through budgets, contracts, grants or donations to a health care provider. A fixed cash sum in advance, intended to cover the total cost of services for a certain period of time where the recipient agency in
Global budget
charge of administering the budget can often exercise liberties such as decide how much to spend for each line item within the total amount allocated. Goods and service taxes (GST) Gross domestic product (GDP) Gross national product (GNP) Health economics A means of raising additional revenue through taxing goods and services at the point of sale (see also value added tax). The total value of goods and services produced within a country each year. The total value of goods and services produced by a country’s companies and residents. A study of how scarce resources are allocated to and within health economy, including quantity of resources used, volume of services produced, and distribution of services across populations and their effects on individuals and societies. Financial protection against medical care costs arising from disease or injury. The reduction or elimination of the uncertain risks of loss for the individual or household, by combining a larger number of similarly exposed individuals or households who are included in a common fund that makes good the loss caused to any one member. Community based health insurance (CBHI): A micro-insurance scheme managed independently by community members, a community-based organization whereby the term community may be defined as members of a professional group, residents of a particular location, a faith-based organization etc. Micro insurance: Also referred as CBHI, small-scale, local and independently managed scheme, often set up because people are unwilling to trust in larger schemes. Most of the micro schemes are weak to deal with unpredictable large expenses. Social health insurance: Compulsory health insurance, regarded as part of a social security system, funded from contributions – often community rated- and managed by an autonomous yet state/ parastate legal entity. Private health insurance: A health insurance scheme often characterized with the following features: voluntary, managed outside the social security system with risk-rated or communityrated premiums, managed by an independent legal entity (an incorporation, organization, association or foundation) not by a state/quasi state body, operating for profit or non-profit. Voluntary health insurance. Health insurance that offers benefit to its members entitled on a voluntary basis, which can be managed by a private, public or quasi-public body.
Health insurance
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Health maintenance organization (HMO)
An organization that accepts responsibility for organizing and providing a defined set of services for its enrolled population, in exchange for a predetermined, fixed, periodic payment for each person or family unit enrolled (see also Managed Care). As one of the Health for All global strategy, WHO advised the Member States to spend minimum 5% of GDP on health. In many countries only one disease, such as diabetes could consume the entire amount. High level of spending may not necessarily lead to high health outcomes. At any given level of income and spending health outcome varies. Therefore, efficient use of available funds becomes critical. It is also important to correct imbalances, low spending in some areas and high spending in others. Enterprises, which are not registered and licensed to conduct business but do so in an entrepreneurial, independent manner, and whose earnings are not reported or declared as part of a payroll process. Compared with wage-earning workers in the formal sector, the informal sector has more labour-intensive mode of production. Informal production units typically operate at a low level of organization, with little or no division between labour and capital on small-scale labour operations. Their existence is based on casual employment, kinship or personal and social relations rather than contractual arrangements with formal agreement. Resource allocation behaviour of large homogenous units in the economy: in health care, for example, the behaviour of all consumers or producers in health systems. The form of health insurance that combines the financing and delivery of health services and integrates elements of cost containment with quality of health services. Managed care organization (see also: Health Maintenance Organizations) employs physicians and may contract with or own the clinics and hospitals from which services are provided to its covered members. Members are not free to choose any provider but must choose from the managed care plan’s providers or contracted ones. There is a network of providers or those whom it has contracted. The resource allocation decisions made by smaller units within a country such as by individuals, households, firms and health facilities. Abuse of insurance benefit by insured people which yields to an increase in health expenditure. A framework and methodology for measurement and presentation of information on total national health expenditure including public and private sources of funds. NHA tracks financial
Health spending
Informal sector
STRATEGY ON HEALTH CARE FINANCING for Countries of the Western Pacific and SouthEast Asia Regions
Macroeconomics
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Microeconomics
Moral hazard
National Health Accounts (NHA)
resources from sources, to providers and functions. It is important because, health systems are complex and policy makers need tools to analyse HCF, how and how much resources used in a health system, what resource allocation patterns, use and options exist. Out-of-pocket payments Payer Payment out of private purse as opposed to public made directly by a patient to a health service provider without reimbursement. The public or private organization that is responsible for payment for health care expenses. Payers may be insurance companies or self-insured employers or persons. Contributions levied against labour income. They are inexpensive to administer but easier to avoid than other forms of taxes. A measure of human progress, using overall well-being to judge the level of a country’s development. Items that remain in an existing state, such as housing, building, and land, or items which increase in value, such as gold jewellery, or items which decrease in value, such as appliances, clothes and vehicles. An agreement or consensus among relevant partners on the issues to be addressed and on the approaches or strategies to deal with them. A method of paying for the cost of health care services in advance of their use. A method providing in advance for the cost of predetermined benefits for a population group, through regular peri odi c payments in the for m of premiums, dues, or contributions, including those contributions that are made to a health fund by employers on behalf of their employees. Ratio between the benefit paid by health insurance and total benefit provided to a patient. Amount paid to a carrier for providing insurance coverage under a contract. Money paid out in advance for insurance coverage. Contributions are often defined as percentage of salary for formal sector employees or monthly level of payments for informal sector employees to health insurance fund on regular basis. Ways or means of paying health care providers such as on a capitation, case based, fee-for-service or other basis (see also individual definitions). Prospective payment: Payment based on a formula that allows service providers to agree the total amount of funding in advance and then payments against that amount are made on a monthly basis.
Pay roll taxes
Per capita income
Physical assets
Policy
STRATEGY ON HEALTH CARE FINANCING for Countries of the Western Pacific and SouthEast Asia Regions
Prepayment scheme
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Prepayment ratio
Premium
Provider payment methods
Retrospective payment. Payment based on services actually delivered in accordance with a fee schedule that is determined in advance. Purchaser This entity not only pays the premium, but also controls the premium amount before paying it to the provider. Included in the category of purchasers or payers are patients, businesses and managed care organizations. While patients and businesses function as ultimate purchasers, managed care organizations and insurance companies serve a processing or payer function. The process by which available resources are distributed between competing uses as a means of achieving a particular goal. Setting premium rates by insurers for individuals and small employers by taking the health status of the insured people into account frequently pricing high-risk individuals and small employers out of the market. Composed of family and clan relationships, networks, membership in groups and community organizations. Benefits in-cash or in-kind that are financed by the state, not contributory, and that are mostly provided on the basis of a means or income level. A complex concept, which can be understood roughly as networks of social relations and associated norms to facilitate action. Social capital is beneficial as a resource for individuals’ and communities’ well being in terms of information, influence and solidarity. The concept has been applied widely ranging from families, education to public health, and economic development. The set of policies and programmes designed to promote efficient and effective labour markets, protect individuals from the risks inherent in earning a living and support individuals (ADB). A series of public measures against the economic and social distress caused by the stoppage or substantial reduction of earnings resulting from sickness, mater nity, employment, injury, unemployment, invalidity, old age and death (ILO). A system that would allow economically and socially deprived citizens to continue to receive social services through free services, subsidized care, social insurance and social assistance. The system should assure that citizens retire with dignity and income – pension benefits; citizens are insulated from the loss of income due to economic forces out of their control – unemployment benefits; citizens not bear the full risk and costs for illness and injury – health benefits; and citizens are provided social welfare support.
Resource allocation
Risk rating
Social assets
STRATEGY ON HEALTH CARE FINANCING for Countries of the Western Pacific and SouthEast Asia Regions
Social assistance
Social capital
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Social protection
Social safety nets
Social security
The protection which society provides for its members through a series of public measures, against the economic and social distress that other wise would be caused by the stoppage or substantial reduction of earnings resulting from sickness, maternity, employment injury, unemployment, invalidity, old age and death. The awareness of unity and a willingness to bear its consequences. Everybody is aware and accepts that the size of the personal return may not match the initial investment. Family and clan solidarity is based usually on moral obligation. Taxes used for effectively reducing the demand for harmful substances such as tobacco and alcohol by raising the price closer to its true social cost. These taxes may create a conflict of interest in a way that lowered demand and consumption can affect sources of revenue. Access to key health promotion, preventive, curative and rehabilitative health interventions for all, at an affordable cost, thereby achieving equity in access. Incorporates two dimensions: depth-health care coverage as in adequate health care-and widthpopulation coverage. Payment for goods and services according to price list or fee schedule. User fee system is inequitable by its own nature. It makes the patients bear the cost of services and it makes the poor pay proportionally more than the rich. Imposed and collected tax on the value added at each stage of the production and distribution of a good and service (see also: Goods and Services Tax). The process in which non-member nations of the world enter into bilateral and multilateral talks with the members of the World Trade Organization to become a member and benefit from globalization of trade and services.
Solidarity
Special consumption taxes
Universal Coverage
User charges
STRATEGY ON HEALTH CARE FINANCING for Countries of the Western Pacific and SouthEast Asia Regions
Value added tax (VAT)
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WTO accession