Financial sustainability in the context
of economic crisis:
sustaining equity and solidarity
Tamás Evetovits
Senior Health Financing Specialist
WHO Regional Office for Europe
Outline
Dealing with the downturn
Why protect public spending on
health?
Balancing the budget
Sustainability. Let’s clarify
Financial sustainability in the context of
economic crisis
28 June, 2012. Tallinn, Estonia
OBS/HEN Policy summary on the
response to the financial crisis
1. Protect health budgets and consider health sector as a
component to economic recovery
2. Adjust revenue collection
3. Consider re-allocation within the exisiting government
budget and within the health budget
4. Careful with coverage decisions and shifting to private
expenditure
5. Improve efficiency
6. Improve preparedness for dealing with downturns
Financial sustainability in the context of
economic crisis
28 June, 2012. Tallinn, Estonia
Coverage decisions
Financial sustainability in the context of
economic crisis
28 June, 2012. Tallinn, Estonia
Improving efficiency reduces adverse effects of
the crisis and help secure popular and political
support for more spending in the future...
eliminate ineffective and inappropriate
services
improve rational drug use
(including volume control)
allocate more to primary and outpatient
specialist care at the expense of
hospitals
invest in infrastructure that is less costly
to run
cut the volume of least cost-effective
services
Short-term solutions are important to keep the system
running, but proceed with care when looking for savings
Aim for sustainable efficiency gains
Avoid losing human resources
Careful with shifting from public to
private spending especially
out-of-pocket expenditure
Cost containment ≠ efficiency
Financial sustainability in the context of
economic crisis
29 June, 2012. Tallinn, Estonia
Crisis presents opportunities not
to be missed and potential
failures to avoid
Financial sustainability in the context of
economic crisis
29 June, 2012. Tallinn, Estonia
Why protect public spending for health?
There is strong
correlation between
public spending on
health and the level of
out-of-pocket
expenditure
“Today, it is
unacceptable that
people become poor as
a result of ill health”
Tallinn Charter
Medicines are the main
cause of spending for
poorer people
Catastrophic spending is
highest among poorer
people
Patients forego seeking
care or do not buy
prescribed medicine
Financial sustainability in the context of
economic crisis
28 June, 2012. Tallinn, Estonia
Catastrophic spending is highest among
poorer people
Source: Võrk A et al.
Income-related inequality in
health care financing and
utilization in Estonia 2000–
2007. Copenhagen, WHO
Regional Office for Europe,
2009.
Financial sustainability in the context of
economic crisis
28 June, 2012. Tallinn, Estonia
Source: Võrk et al 2009
Medicines are the main cause of spending
for poorer people
Patients forego seeking care or do not
buy prescribed medicine
The unmet need for health services was already high before the crisis.
(Latvia)
Source: EU-SILC 2006
Health impact of social welfare spending
and GDP growth
Social
welfare
spending
GDP
• Each additional 100USD per
capita spending on social welfare
(including health) is associated
with 1,19% reduction in mortality
• Each additional 100USD per
capita increase of GDP is
associated with only 0,11%
reduction in mortality
Source: Stuckler D et al. BMJ 2010;340:bmj.c3311
Financial sustainability in the context of
economic crisis
28 June, 2012. Tallinn, Estonia
The rationale for counter-cyclic fiscal policies for
social and health expenditure
• Need for health care during the crisis increases
• Drop in public expenditure leads to an increase in
private spending which in turn reduces financial
protection for the poor who may forgo seeking care
• Utilization of services and quality of care during a
crisis decrease despite increased needs
• Utilization decreases less where the cost of seeking
care is low
Financial sustainability in the context of
economic crisis
28 June, 2012. Tallinn, Estonia
Balancing the budget
An accounting exercise or a matter of
choice in public policy priorities
Financial sustainability in the context of
economic crisis
28 June, 2012. Tallinn, Estonia
What determines level of public spending on
health?
• Context
– Size of the economy – economic context
– Size of the government: taxation policy – fiscal context
• Priorities
– Government decision on allocation to health
Financial sustainability in the context of
economic crisis
28 June, 2012. Tallinn, Estonia
0.00
16
Tajikistan
Kyrgyzstan
Republic of Moldova
Uzbekistan
Georgia
Armenia
Ukraine
Bosnia and…
Albania
Azerbaijan
TFYR Macedonia
Serbia
Kazakhstan
Montenegro
Bulgaria
Belarus
Romania
Turkey
Latvia
Lithuania
Croatia
Russian Federation
Poland
Hungary
Estonia
Slovakia
Portugal
Czech Republic
Malta
Slovenia
Greece
Israel
Cyprus
Italy
Spain
France
Iceland
United Kingdom
Finland
Germany
Belgium
Sweden
Denmark
Austria
Ireland
Netherlands
Switzerland
Norway
Size of the economy (2010 GDP/capita)
CRO and RUS have same size of GDP/capita
60000.00
50000.00
40000.00
30000.00
20000.00
10000.00
0.00
Kazakhstan
Tajikistan
Armenia
Azerbaijan
Albania
Uzbekistan
Kyrgyzstan
Switzerland
Georgia
TFYR Macedonia
Croatia
Bulgaria
Russian…
Turkey
Slovakia
Romania
Estonia
Republic of…
Lithuania
Bosnia and…
Luxembourg
Malta
Belarus
Czech Republic
Israel
Latvia
Montenegro
Poland
Serbia
Norway
Spain
Cyprus
Ukraine
Germany
Hungary
Slovenia
Greece
Italy
United Kingdom
Netherlands
Portugal
Iceland
Austria
Sweden
Belgium
Finland
France
Denmark
Ireland
Fiscal context: relative size of the government (2010)
CRO and RUS have similar size of government as a share of GDP
70.00
60.00
50.00
40.00
30.00
20.00
10.00
Source: WHO, 2011
0.00
Azerbaijan
Cyprus
Tajikistan
Armenia
Georgia
Russian…
Albania
Uzbekistan
Latvia
Ukraine
Ireland
Bulgaria
Belarus
Hungary
Israel
Kyrgyzstan
Romania
Kazakhstan
Estonia
Poland
Greece
Finland
Lithuania
Turkey
TFYR Macedonia
Republic of…
Malta
Montenegro
Slovenia
Serbia
Slovakia
Portugal
Italy
Iceland
Sweden
Czech Republic
Belgium
Spain
Luxembourg
United Kingdom
Austria
France
Bosnia and…
Denmark
Norway
Croatia
Netherlands
Germany
Switzerland
The real measure of “priority”: government spending on
health as a % of total government spending (2010)
CRO and SVK give high priority to health, LVA and RUS below 10%
25.00
20.00
15.00
10.00
5.00
Source: WHO, 2011
0.00
Source: WHO, 2011
Azerbaijan
Tajikistan
Armenia
Georgia
Cyprus
Kazakhstan
Albania
Uzbekistan
Russian Federation
Kyrgyzstan
Bulgaria
Latvia
Belarus
Romania
Ukraine
TFYR Macedonia
Israel
Estonia
Turkey
Hungary
Lithuania
Republic of…
Poland
Malta
Slovakia
Greece
Montenegro
Ireland
Serbia
Luxembourg
Croatia
Czech Republic
Finland
Switzerland
Bosnia and…
Slovenia
Spain
Italy
Portugal
Iceland
Sweden
Norway
Belgium
United Kingdom
Austria
Germany
France
Netherlands
Denmark
Public sector expenditure on health as a % of GDP
(2010)
12.00
10.00
8.00
6.00
4.00
2.00
Priorities matter: what if Latvia gave the priority
to health that its neighbours do?
GDP per
capita
(int US$)
Public
spending as
% GDP
Health as
% of total
public
spending
Government
health spending
as % GDP
Latvia (2010)
16,344
44.37
9.21
4.09
LTU priority
16,344
44.37
12.64
5.61
EST priority
16,344
44.37
11.68
5.18
Instead, Latvia has further reduced its public spending on health to
3.21% of the GDP in 2012
Financial sustainability in the context of
economic crisis
28 June, 2012. Tallinn, Estonia
Priority to health. Is it that simple?
What if political commitment is short lived?
How can health financing policy help with
securing stable, predictable revenue for health?
Why do we see low priority given to health in
some countries but not others?
Financial sustainability in the context of
economic crisis
28 June, 2012. Tallinn, Estonia
Beveridge and Bismarck are not helpful here
Latvia (tax financed) and Hungary (SHI) both gave low
priority to health long before the crisis and in their responses
as well. Their health systems were in bad shape already
UK (tax financed), Czech Republic, Croatia and Slovenia
(SHI) maintained high priotity
Institutional arrangements helped Lithuania and Estonia (at
least in the short run) except for public health programmes
Financial sustainability in the context of
economic crisis
28 June, 2012. Tallinn, Estonia
Sustainability. Let’s clarify
Financial sustainability in the context of
economic crisis
28 June, 2012. Tallinn, Estonia
Economic sustainability: is there a cause for
corncern? What do we spend our GDP on?
PPP adjusted international US$
25000
20000
15000
10000
5000
0
2000
EST health spending
Source: WHO NHA database, 2012
2010
EST non-health spending
Fiscal sustainability: is the health sector a threat
to fiscal sustainability?
Government health spending
less than 12% of total in 2000...
and in 2010 as well
Financial sustainability in the context of
economic crisis
Source: WHO NHA database, 2012
28 June, 2012. Tallinn, Estonia
The real challenge in many CEE and SEE
countries
Sustaining
stable,
predictable
revenues for
health seems
to be a
challenge in
both SHI and
tax-financed
systems
• SHI: exclusive reliance on
earmarked payroll tax is
unsustainable in the long run
• Tax-financed: unpredictable annual
allocation decisions make
stakeholders argue for earmarking
• Mixed systems are evolving, but that
does not solve the fundamental
question of priority to health
Financial sustainability in the context of
economic crisis
28 June, 2012. Tallinn, Estonia
Sustainability and health policy objectives
• Sustainability is meaningless if
not linked to health system
objectives
• Financial sustainability should
not be seen as a policy
objective worth pursuing for its
own sake
• If it was an objective, then a
simple cost cutting exercise
would do the job…
• …and both equity and
efficiency would suffer.
Financial sustainability in the context of
economic crisis
28 June, 2012. Tallinn, Estonia