Evaluation of Health Care
Financing
Dr. Kyaw Swa Mya
Lecturer/Head
Environmental Health Department
University of Community Health
Outline of Presentation
• Why health care financing?
• Overview of health care financing
• Evolution of health care financing at various
stages of economic development
• Criteria for evaluation of health care financing
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Why is health care financing an
important subject?
• Health care is a basic necessity
• Many poor cannot afford illness cost
• Medical cost for treating serious illness are
beyond the financial means of most
households
• Many households face bankruptcy when
serious illness strikes
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Philosophical Reason
• Egalitarian philosophies – emphasizes equity,
particularly equal access to health care and
views health care as fundamental necessity for
human well being
• Utilitarian philosophies – views health in the
context of how health contributes to a
nation’s welfare
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Policy Reason
• The amount of financial resources mobilized
for health care and how they are used depend
on health care financing policy
• Financing is the principle instrument with
which to determine resource flows,
distribution of resources, and incentive
structures for health providers
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Policy Reason
• Unless a nation has a rational and integrated
financing policy, the health care costs of
elderly, disabled, and less healthy persons are
left for the government to finance and the
cost become a heavy financial burden on the
treasury
• Determine who will have access to basic
health care, what services are offered, and
their quality
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Market Failure Reason
•
•
•
The distribution of health risks are highly
skewed and it caused two serious market
failures in private insurance market
Adverse selection – high risk individual more
likely to purchase insurance
Risk selection – insurers exclude high risk
individuals and only insure healthier persons
for maximum profit
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Macro-environmental Reason
• Economic changes – reduction of government
spending in public sector
• Demographic changes – significant increase in
the population as a whole and of those over
age 60
• Epidemiological changes – double burden?
Triple burden?
• Political changes – increased demand and
government supply
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Six Building Blocks of a Health System
Purposeful change aimed at
improving health system
performance for:
System Inputs
Source: Strengthening Health Systems to Improve Health Outcomes, WHO’s Framework for Action – WHO 2007
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Overview of HCF
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HCF policy goals (WHO report, 2000)
•
•
•
•
•
•
Financial protection
Equity in finance
Equity of access
Transparency and accountability
Quality care and efficient service delivery
Administrative efficiency
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Three basic principles for HCF
• Principle 1 – Raise enough revenues to provide
individuals with a basic package of essential services
and financial protection against catastrophic medical
expenses caused by illness and injury in an equitable,
efficient, and sustainable manner
• Principle 2 – Manage these revenues to pool health
risks equitably and efficiently
• Principle 3 – Ensure the purchase of health services
in ways that are allocatively and technically efficient
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Functions of HCF
• Revenue collection
• Polling resource
• Purchasing services
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Methods of HCF
• Government revenue e.g. general tax,
inflation, earmarked tax
• Social and private insurance
• User fees (OOPs)
• Community financing
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Exchange Model
• Bilateral exchange model for goods
Money
Consumers
Providers
Service
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Exchange Model
• Trilateral Exchange Model for Goods
Treasury
Taxes
Financing
Organization
Payments
Premiums
Services
Consumers
Providers
User’s fee
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Evolution of Health Care Financing at
Various Stages of Economic Development
Stage I (three tired system)
Methods
General
revenue +
donor
Stage II
Stage III
Poor
Low
Segmented finance
(Universal coverage)
< $ 1,800
1,800 – 4,800 $
5,000 – 12,000 $
> 12,000 $
Public health services
NHS (UK, N.Z.)
Public health, prevention
Public health services
(clinics, hospitals)
(50-60%)
Social
insurance
Medisave, Singapore
(40-50%)
(20-40%)
For civil
servant
NHI (Canada)
(10-20%)
(30-60%)
Bismarckian
Negligible
(5-10%)
(15-40%)
Medicare (USA)
Self pay
Self pay
Private
insurance
Private hospitals & clinics
Self pay
(OOPs)
Pharmacists
Indigenous providers
(35-45%)
(20-40%)
(15-25%)
(15-25%)
Bangladash
Philippines
Thailand
USA, Singapore
India
Indonesia
Malaysia
Canada
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Criteria for Evaluation of HCF
• Equity – in financing
- in provision of health care
• Efficiency – in financing
- in provision of health care
• Other criteria – quality, sustainability, risk
pooling
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Definition of Health Equity
• The International Society for Equity in Health
(ISEqH) defined equity in health as
“the absence of systematic and potentially
remediable differences in one or more aspects of
health across populations or population
subgroups defined socially, economically,
demographically, or geographically”
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Difference of inequity and inequality
• Health inequalities are differences in health that
are “avoidable,” “unjust, and unfair”
Whitehead 1990
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Determinants of Health Inqualities
1. Natural, biological variation
2. Differential health-damaging
behavior that is freely chosen
3. Differential health-promoting behavior that is
freely chosen
4. Differential health-damaging or health-promoting
behavior, where choices are restricted
5. Differential exposure to unhealthy, stressful
conditions (home, work, etc…)
6. Inadequate access to basic social and essential
health services
7. Health-related social mobility
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Generally
perceived as
unavoidable or
fair
Generally
perceived as
avoidable or
unfair
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Vertical and horizontal equity
• Horizontal equity applies to people in the same
status or situation, and people who are alike
should be treated in the same fashion,
– in other words, equal treatment for equal need
• Vertical equity focuses on the difference between
individuals or groups of people, and people who
are unlike in relevant respects (e.g. income,
health needs), and states that the differences
should be treated differently in a just way
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How to measure equity?
•
•
•
•
Lorenz curve
Gini coefficient
Kakwani index
Concentration index
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Lorenz Curve
• Lorenz curve is a graphical representation of
the proportionality of a distribution (the cumulative
percentage of the values). It was developed by
Max O. Lorenz in 1905 for representing income
distribution
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Lorenz Curve
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Gini Coefficient
Note: Gini Coefficient is a tool for measuring inequality of income.
The value of Gini coefficient ranges from 0 to 1. A low Gini coefficient
indicates more equal income or wealth distribution, while a high Gini
coefficient demonstrates more unequal distribution.
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Gini Coefficient
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The Kakwani index
• Is defined as twice the area between the
concentration curve of health payment and the
Lorenz curve of household income
• The value of the Kakwani index ranges from -2 to 1
• A negative Kakwani index value indicates the
regressive nature of health care payments
• In contrast, a positive value indicates the
progressive nature of health care payments
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The Concentration Curve and Index
• The concentration curve graphs on the x-axis the
cumulative percentage of the sample ranked by living
standards, beginning with the poorest, and on the y-axis
the cumulative percentage of the health service use
corresponding to each cumulative percentage of the
distribution of the living standard variable
• The concentration index is a means of quantifying the
degree of income-related inequality within a specific health
variable, for example, health service use, and government
health subsidies
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The concentration index
• is defined as twice the area between the concentration
curve and the line of equality (the 45-degree line running
from the bottom-left corner to the top-right)
• In the case where there is no income-related inequality, the
concentration index is zero
• The index takes a negative value when the concentration
curve lies above the 45-degree line of equality, indicating
disproportionate concentration of health service use or other
health variables among the poor, and a positive value when
it lies below the 45-degree line of equality
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Equity in Health Care Financing
Kakawani Index
Concentration curve for health payment and lorenz
curve for health expenditure, Egypt 1997
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Concentration curve for health payment and lorenz
curve for health expenditure, Egypt 1997
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Progressive & Regressive result of
previous figure
• Kakawani index (direct tax) = 0.2501
• Kakawani index (indirect tax) = 0.1435
• Kakawani index (social insurance) =
- 0.0532
• Kakawani index (OOPs) = 0.0644
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Trends of Kakawani indices of HCF
Methods in Thailand (1986 – 1998)
0.4
0.3
0.2911
0.2479
0.2545
0.2
0.2546
0.2309
0.2372 0.2269
0.1
0
-0.064
-0.1
-0.2
-0.3
-0.1322
-0.2273
-0.0362
-0.0667
-0.1019
-0.1911
-0.2327
-0.1787
-0.2317
-0.1635
-0.238
-0.2044
-0.2227
-0.3176
-0.0972 -0.108
-0.1507
-0.2406 -0.2515
-0.254
-0.4
1986-1988-1990-1992-1994-1996-1998
Direct
indirect
Both direct & indirect
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OOPs
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Progressivity of HCF
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Equity in Provision of Health Care
Concentration Index
Selected concentration curves of ambulatory service use
among different types of health facilities in 2003
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Selected concentration curves of ambulatory service use
among different types of health facilities in 2003
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Selected concentration curves of ambulatory service use
among different types of health facilities in 2003
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Selected concentration curves of ambulatory service use
among different types of health facilities in 2003
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Concentration curve for health sector subsidies and
lorenz curve of household consumption,
Egypt 1997
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Regressive result of previous figure
•
•
•
•
Kakawani index (inpatient) = - 0.1785
Kakawani index (outpatient) = - 0.1069
Kakawani index (health centre) = - 0.4797
Kakawani index (total subsidy) = - 0.2124
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Efficiency in Health Care Financing
and Provision of Health
Efficiency Measures Overview
It is organized in three tiers
1. Perspective
Function of Health system
esp in Health Care Financing
2. Output
Revenue collection, risk
pooling, purchasing
3. Type of Efficiency
Allocative,
Technical/ Productive and
Social Efficiency
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Efficiency Overview
Perspective
Society
Health Care Financing
Health Plans
Providers
Purchasers
Type
Output
Individuals
Revenue collection, Risk pooling
Technical
Productive
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Purchasing
Social
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Allocative Efficiency
A firm achieves technical efficiency when it
cannot produce the same output with any
fewer inputs
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Technical/Productive Efficiency
A firm achieves productive efficiency when it
cannot produce the same output at a lower
cost
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Social efficiency
• Social efficiency is more often the focus for
society than for firms and mainly consider for
social inclusion
• No person can be better off without making
somebody worse off (Pareto optimality)
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Public Finance Challenge
Pure Private Goods
Cosmetic surgery
Open heart surgery
Curative
Kidney dialysis
VIP IP care
2nd class IP care
OP hospital self-referrals
OP hospital referrals
Health center OP curative
Family Planning
Actual funding
ends up here
Maternal and Child Health
Preventive
Poor
Vector control
Environmental sanitation
Water supply
Rich
Pure Public Goods
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Government policy
dictates most
resources flow here
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Financing: Filling the gaps
Pure Private Goods
Curative
Public / private
collaboration in curative
service delivery Self-
Subsidized
pre-pmt
Schemes
Preventive
financing
Pre-pmt
Schemes
Pure
private
provision
+ service
contracts
SHI
-
public/private provision
Public provision & finance
The poor
The rich
Pure Public Goods
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References
• Andres Vork et. al, 2010. Income related inequality in
health care financing and utilization in Estonia since
2000. WHO health financing paper 2010/3
• Innovative Medicine South Africa, 2009. National
health insurance Background brief: Understanding
Health Care Financing
• Mara Brain, 2008. Public Health Care: Reform and
financing, A big picture
• Owen O’donnel et. al, 2008. Analyzing health equity
by using household survey data: A guide to
techniques and their implimentations
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References (Contd)
• Pablo Gottret & George Schieber, 2006. Health
financing revisited: A practitioner’s guide
• Supasit Pannarunothai and Direk Patmasiriwat, 2000.
Equity-directed health care reform in Thailand: The
use of macroeconomic indices
• The alliance, 2006. Efficiency in Health Care: What
does it mean? How is it measured? How can it be
used for valued based purchasing?
• WHO, 2007. Strengthening Health System to improve
Health Outcomes: WHO’s framework for action
• William Hsiao, 2000. Health care financing in
developing nations
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