HEALTH CARE COSTS AND COMPARISON OF DIFFERENT METHODS
OF FINANCING HEALTH CARE.
Dr. M.A. Adedigba
(BchD. Ife, MCommH. Ife, MSc.Dent.Sc. Stellenbosch, FWACS)
Preventive and Community Dentistry,
Faculty of Dentistry, O.A.U., Ile-Ife.
There are rising interest of many on escalating health care costs globally and how it
should be financed. Many developing countries inherited heavy dependence on tax
revenues from the colonial rule to finance health care. The Latin American countries
are exempted from this because they operate a social security system. Many countries
of the world have undergone reforms since late 1970s. The World Bank advocated the
use of direct user-charge finance system in 1987. The form and level of health care
financing are now a major policy for most developing country governments. In this
vein the Federal Republic of Nigeria formulated the National Health Insurance
Scheme signed into law in 1999.
The pressure emanating to the increasing interest in health care financing are from the
followings:
(1) Demography data:
This have three major influence on health care financing and provision.
(a) The population growth rates: Sharp growth rate or population doubling time are
very high in most developing nations. This will in no doubt strain the meagre
available resources. This will affect not only the financing of health care but other
social amenities such as roads, water, electricity etc.
(b) The composition of the population may be such that there are increased number of
children and elderly in the population. This is the usual scenario in developing
country’s population with high growth rates. The children and elderly are known to
consume a lot of health care resources. The antenatal, obstetric, under 5 children are
heavy users of health facilities. This is also true of the elderly with chronic diseases
such as Diabetes, Cancer, Hypertensive heart diseases, musculoskeletal disorders etc.
(c) The ratio of dependants to economically productive individuals in the population
will also have a major effect on funding of health. In a population with more than
45% children (<15 years) and say 30% elderly (>60 years) will increase the economic
burden on the producers. This scenario is very common among many developing
countries- with high growth rates where there are more children (dependants) than the
producers.
(2) Economic Recession: The global recession of 1970s and 1980s have rendered a
devastating effect on the economy of many developing countries with high debt
burdens and debt servicing, high inflation rates, Structural Adjustment Programme
(SAP) etc. These led to many governments of the developing countries not to been
able to maintain not to talk of expanding the existing health care system. The SAP has
in its package economic measures such as devaluation, increased import prices and
decreased funding on health and education.
(3) Expectations from health care: There are increasing pressures from the
population on the expectations on health care. Majority will like to enjoy the health
care facilities similarly available in the first world countries. This is usually associated
with the use of high Tech equipment which most of the time are imported.
(4) Drive for Equity: Many segments/regions of most developing countries are
underserved with health care facilities. Also, majority have access only to basic but
limited health care. One of the principles of primary health care is to improve
coverage; this is contrary to the sophisticated health care facilities needed by the
middle class in the urban areas.
(5) Changing disease pattern: As the income of an individual rises there is a change
in the pattern of the disease to be observed. The diseases associated with poverty are
rapidly disappearing leaving the room for those of the affluence. Major health
problems in developing countries are preventable and are relatively cheap to deal with
when compared with that of the advanced countries (Heart diseases, Cancer, Diabetes
etc). The change in disease pattern associated with change in social status will
invariably lead to an increasing cost for health care of those diseases. Also, when new
diseases are being discovered (e.g. HIV/AIDS, SAS, Bird flu) or that previous
diseases that are not medically diagnosable based on the available knowledge then,
are now possible through the use of high sophisticated and expensive medical
equipments.
HOW DO WE INCREASE EFFECTIVE RESOURCE LEVEL IN HEALTH
CARE FINANCING?
As a result of the afore-mentioned factors affecting health care funding, there is a
need to look into what areas and measures that can be introduced to improve health
care financing. The followings are areas to look into with the hope of improving
resources to finance health care:
(1) Efficiency: The existing services should be look into with the hope of improving
them. This can best be done by:
(a) Appraisal: cost-effectiveness analysis may suggest alternative approaches
to specific health problems that are better or more effective.
(b) Contracting out: Some of the services can be contracted out to individuals
and companies to improve effectiveness e.g. catering, cleaning, security
services etc.
(c) An internal market: This is selling of services to one another within the
same organisation e.g. X-rays. There is an assumption that this will improve
efficiency.
(d) Information dissemination: Comparative information about various
segments of the establishment can be disseminated to enhance peer group
pressure to change practice that will bring about better efficiency.
(e) Management team composition: The clinicians are to be involved in
decision making body because they have more influence on the way resources
are used. Their involvement in management team will invariably improve their
level of awareness to cost and better efficiency.
(2) Reallocation of resources (within the health sector): This is allocation of
resources to priority areas. This is better observed in changing pattern of disease e.g.
eradication of smallpox. Allocation should be based on planning- say based on the
proportion of various groups in a population (% of children, elderly etc). Currently,
most countries are allocating huge amount resources on the prevention, control and
management of HIV/AIDS as compared to some other diseases.
(3) Reallocation of resources to health sector (from other sectors): This done by
the government by allocating more resources to health by reducing allocation to other
sectors such as defence. It should be noted here that what reallocation of such funds
would achieve in health sector might equally be achieved through education and
Agriculture. Similar result can also be observed through provision of social
infrastructure.
CRITERIA FOR CHOOSING A FINANCING SYSTEM
The choice of funding system involves a major policy decision. The followings are
clear criteria for selection of the best method. The first 3 deals with any financing
system while the last 3 hold true for primary health care system:
(1) Viability and simplicity of use: Any financing system must possess the ability to
be made to work. Careful consideration of technical feasibility is very important.
Complex, bureaucratic and costly mechanism must be avoided. Say paying stations
remote from places of consumption of services (use of banks etc). Cultural
acceptability of the financing system must be considered in a community.
(2) Revenue-generating ability: A system is said to be generating revenue when the
cost of production is much less than the revenue earnings OR when the sale of goods
and services are greater than that of the resources inputted i.e. output/income greater
than input/expenditure.
(3) Effects on service provision: The mode of financing health care can be
dis/incentive to the users. You can create dis-incentive to urban dwellers to use a
secondary level of care (Hospital) as a primary care centre by introducing heavy out
of pocket charges in to the out patient department. The contrary will be done to those
patients referred from the primary health care centre to the secondary centres. Also, in
third party health care financing, some services such as preventive services (S& P)
may carry more remuneration for the practitioner than extraction of wisdom tooth.
Some other treatment may be discouraged such aesthetic care (orthodontic)-payment
of such may not cover the entire practitioner’s bill.
(4) Effects on equity: Equity here means “equal access to care for those in equal
need”. There are two types of equity: Horizontal and Vertical equity. Horizontal
means equal treatment of equals: those with similar health needs be given equal
opportunity to access and treatment. Vertical equity means unequal treatment for
unequals-those with greater needs would obtain concessional access e.g. more
resources for TB prevention and control in endemic areas or lower income groups
may have treatment and transport fare subsidized. This must be considered before a
choice of financing system is chosen. User charges may discourage lower income
earners from using/consuming a particular service(s). Social insurance may favour
services utilisation by urban high income earners. Fund raising can be regressive or
progressive depending on the relative income of the users. It is regressive if its takes a
greater percentage of income from the lower income earners; it could be progressive
if it takes a greater percentage of income from the higher income earners. The tax
system of a country can be regressive if tax is placed on essential goods or
progressive if placed on luxury goods. “Under tax based system, collective financing
of health care is carried out in such a way that there is a transfer of resources from the
richer elements of society to the poor and sick group”. In user charges, the sick will
pay for the services s/he consumes without any cross-subsidy from others in the
community (rich, healthy individuals).
(5) Community participation: User charges allow the individual consumer to get
involved in decision making. This is done by direct strengthening of direct
relationship between the consumer and the provider.
(6) Multi-sectorialism: This describes the involvement of other sectors of life to play
key role in health care system (Engineers, Sociologists etc). A financing system may
allow or disallow the involvement of other sectors of the society. User charges may
not encourage fees collected for clinical services to be used for the provision of water
for a particular community. This is contrary with the use of tax-based system.
ALTERNATIVE SOURCES TO FINANCING HEALTH CARE.
The major sources of financing health care are as follows:
(A) Fees for service and insurance
(B) Tax revenue and national insurance
(C) Community financing
(D) Loans and grants.
(A) Fees for service and insurance: The most essential mode of health care
financing is the fees for service. Fees are charged to cover the cost of the provided
services. This is commonly found in many government health care facilities in
developing countries. It is done so as to raise funds and to possibly discourage
“unnecessary demand”. The World Bank suggested this type of health care financing
but in differential manner .i.e. community preventive services should be rendered
free, curative primary care by user charges and potential personalised preventive care
at a reduced cost.
It’s disadvantages are: (a) Collection may be difficult/complex (b) may not encourage
equity (c) it discourages the real users (because price is a determining factor) (d) It is
regressive because the poor are greatly affected (e) Waged labourer who are not paid
during the course of sickness will be affected and (f) peasant farmers with highly
seasonal income will face difficulties in paying for the health bills especially during
pre-harvest period (which is also time they become more sick).
Exemption schemes have been advocated to get around equity problems in health care
financing but it has its own problems as well. The question of “who should be
exempted” is a major obstacle. “Is it based on income level?” “If on income level at
what level should be?” “What is the process of selecting exempts and who determine
the exemption?” (‘the beauty is in the eyes of the beholder’). Exemption process can
also discourage utilisation of services due stigmatizing of holders of such.
Insurance coverage is another means of health care financing. Here the risk of illness
is pooled among the insured group. There are various alternative combinations of
coverage are available within the insurance schemes. Various combinations can be:
in-patient or out-patient cover, with/out obstetric cover, exclusion of chronic diseases
cover etc. Premium (monthly payment to the insurance company) depends on some
factors. These factors are:
(1) Type of care required: this is to know what type of medical conditions will be paid
for; will it include preventive services?
(2) Health status of the insuree: this can be determined by health indicators such as
Age, Occupation (high risk?), life habits (smoking, alcoholism) and by conducting a
medical test. This is done to possibly select high risk insurees that would consume
more and afterwards make exorbitant claims from the insurance. Potentially high risk
insuree may require paying high premiums or not covered for some services
consumed.
(3) Co-payment agreement: this will determine the amount of premium to be paid.
Insuree agreeing to part-payment of some procedures may be required to pay lower
premium. A reimbursement method may also be put in place-where the insuree pay
for the consumed services and afterwards make claims from the insurance.
Disadvantages: (1) It encourages stratification of health care system. Within the same
community different people holds different insurance cover for their health as a result
of their ability to pay varied amount of premiums. (2) Spreading of risk rarely occurs
because the higher the risk the higher the premium to be paid. (3) administrative costs
may make it inefficient as a revenue generator (paperwork for claims, advertisement,
medical tests etc), (4) they tend to emphasize curative over the preventive care (5)
difficulty in controlling overall medical costs- there can be abuse by demanding more
than needed (6) tendency towards poor remuneration for the doctors (paying less for
some difficult procedures etc) (7) It encourages changing of jobs- in that insurance
policies are tied to employment.
Health Maintenance Organisation (HMO): This is a variant of general insurance
scheme. The members pay an annual amount of money to a health care provider to
keep them healthy. The provider in turn provides services required directly or through
a third party (i.e. pay other person/ other health care provider services not available in
their centre). The practice here acts as the insurance company. It has the tendency to
reduce its own costs through preventive care and hence minimizing unnecessary
sophisticated medical procedures. It has been proposed to be a regime to the
escalating health care costs in USA.
Disadvantage: They may discriminate against members of the HMO schemes (those
with lower educational background and can not push for their rights) e.g. referring
them to higher hospitals where a higher costs may be paid by the referring HMO.
(B) Tax revenue and national insurance:
National Insurance Scheme (NIS): This widens the base of private schemes with
payments tied to wage levels. It differs from private insurance scheme in that the
cover is identical and premiums are based on the level of income (not on health
status).
Health care is often part of social security schemes. Contributions to the scheme are
from the employees, employers and in some instances the State (government).
Collection of premiums is better done among salaried individuals rather than the
artisan, peasant farmers etc (no regular employment). Equity may be a big question
here because stratification of care may be obvious (due to level of premium). Where
services are not available carriers of social insurance scheme may only have ‘paper
rights’.
In some countries where social security schemes have being the method of caring for
the health of the people. The government care for the populace from her own sources
of revenue. The services are provided at minimal or no direct cost to all the citizens in
cases of most comprehensive schemes. Equity, here depend on means of raising
finance and the means of rationing and distributing the health care resultant from the
‘free service’. Raising finance can be from PAYE tax (Pay as you earn) which is
progressive and regressive if from indirect tax (also depending on goods and services
taxed). It is believed that Tax revenue and national insurance encourages equity and
coverage (relative). Also, have potential to reduce unit costs through economics of
scale and co-ordination of services.
Disadvantages: Systems financed by tax revenue or national insurance are generally
regarded as inefficient because there are no incentives to cut costs and addition of
administrative costs.
(C) Community financing
UNICEF under the Bamako initiative suggested community fund raising to finance
health care. One of these is service-use (e.g. Drug Revolving Funds (DRF)) and others
which are community based (e.g. pre-paid community taxes). This has the advantage
of community participation. The amount of money arising from such community in
the overall that will be available for health will limit its uses not to think of if it has to
be re-distributed to other communities
(D) Loans and grants
Loans and grants may be used to provide resources for health care financing. This can
be through technical assistance or provision of free drugs. Loans are mostly used for
capital financing while grants have the subsidizing effect on the cost of provision of
services. Loans are to be re-paid back at a later time. Loans are to be properly look
into so as to avoid noosing your neck in to difficult, concealed, stringent economic
conditions. The World Bank usually give soft loans with little interest and longer
period of payment but it should be noted that such loans can actually compound the
economic recovery of a developing nation. Loans and grants are sometimes tied to a
particular project or the way and where the money is to be spent e.g. donor may
require that equipment and personnel must be purchased from their market. This may
lead to purchase of spare parts and technical staff from abroad for maintenance
purposes. Sources of loans and grants come from World Bank, Non-governmental
organisations, foreign countries and organisations (EEC, EU, ECOWAS) etc.