Financing Health Services

HMPD 204
Learning Objectives
Define Universal Coverage

Differentiate between different types of financing

mechanisms

Understand the Concept of Risk distribution, moral

hazard & benefit structure

Analyze provider payment mechanisms – VOP

Describe the Lebanese HCS - VOP

 “Universal coverage explained
to my grandma

With universal health coverage, you need no longer worry

that illness will eat into your modest savings or bankrupt
your family. You need not be concerned that you won’t be
able to get the health services you need, or that they might
be of poor quality. You won’t need to fear that the choice
of the right doctor could be a question of life or death”.

Dr Marie-Paule Kieny, Assistant Director-General - Health Systems and Innovation WHO, Commentary, 30 September 2014
Universal coverage: definition
“Universal coverage (UC), or universal health
coverage (UHC), is defined as ensuring that all
people can use the promotive, preventive, curative,
rehabilitative and palliative health services they
need, of sufficient quality to be effective, while also
ensuring that the use of these services does not
expose the user to financial hardship”. (WHO)

UC is a PRINCIPLE; a HUMAN RIGHT

What is Health Care Financing?

The approaches that a country uses to fund health care

services.

Important note: Even in countries with Universal

Coverage, those approaches have serious implications on
equity, access, utilization, quality, efficiency and
compliance.
Health Care Financing :
Basic principles

Raising the revenues that are needed to finance the

intended benefit package (even in universal
coverage)
Risk pooling: managing and controlling the
financial exposure to a certain health risk by
shifting the financial risks from an individual to a
group; A guaranteed small loss to prevent a large,
possibly devastating large loss.
Ensuring Equity (access, quality, affordability)
Efficiency
Health Care Financing: Fact

The funds mobilized in the health sector do not pass

directly from the primary sources to their final uses.
Instead much of the money first passes through financial
intermediaries, known as financing agents which in turn
transfer resources to the ultimate providers of care.
 Flow of funds

Payment & Benefit

Financial
Sources Resource
Intermediaries Allocation package
Financing
Taxes Welfare
Contributions Social Insurance Inpatient Care
Premiums Private Insurance AHCS
Out-of-pocket Patient Medication
Consultations
Home care

Ref: “Flagship module on Financing Health Care and Provider Payment Mechanisms”,
Feb. 2001, Chapter 5
Types of Funding Flow
Two way flow  the money flows directly from service-
.recipient to provider
Three way flow  the service recipient pays a-
third party insurer (who offers protection to a
population against the financial risk of falling ill and
allows the risk to be shared) who would in turn pay
.the provider of service
Four way flow the service recipient pays the 3rd-
party provider who pays the provider organization
.which pays the service providers
Types of Financing Mechanisms (or Health
Insurance Plans)
 Voluntary Insurance Plans (private): can be purchased on group
(Employers-syndicates-schools) or individual basis. The individual
pays a premium to the insurance company.

 Social Health Insurance Plans (public): reflects employee and

employer contribution in the insurance plan for those who are
currently employed or previously employed. Sometimes subsidiezed
by government

 Public Welfare or General Revenue (public): the government raises

taxes to cover a specific benefit package

 Out of Pocket: The individual pays the provider directly upon using
a service. Could take the form of cost-sharing.
Basic Definitions
Beneficiary: The person that is enrolled in a Health
Insurance Plan (HIP) and can receive the benefit (not
the patient)
Moral Hazard: The temptation to use or the act of
overusing services because the financial burden falls
on someone else.
Adverse Selection: High risk individuals are more
likely to enroll in insurance plans. Thus, the plan ends
up with more severe cases than accounted for by
probability
Distributing Risk: Avoid unnecessary losses; rendering
the beneficiary accountable; avoid draining money
away from those who really need it
How HIP Ensure the equitable distribution of
risks?
 Premium Determination is done through risk rating (Actuarial):
individuals paying according to their level of risk. Estimation of
risk is based on epidemiological population studies.
 Community rating: based on geographic area
 Experience rating: based on demographics

 Benefit Structure
Moral Hazard practices has led HIP to introduce the concept of cost sharing / user
fees.
Examples of cost sharing:
 Deductibles = HIP starts paying after a certain minimum (affect initial
utilization or first contact)
 Co-payment = HIP covers a fixed cash amount
 Co-insurance = HIP covers on a percentage basis
 Hybrid benefit plans = both co-payment and co-insurance = a percentage of a
fixed amount
 Comparison between different
financing mechanisms

Financing method Risk pooling Equity Efficiency

General revenue Widest risk pooling Most equitable Inefficient

Social insurance Within the covered Can be redistributive Moderate/good

population within the covered efficiency
population
Private insurance     Inefficient (high
administration costs)

Out of pocket No risk pooling Least equitable Most efficient

payments and User (though can be hard
fees to collect)

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 Pros and Cons of using general revenues to fund health systems

Pros Cons

•       National Health Service •       Health System has to compete with other sectors for
systems cover the entire funds.
population and general
•        Depending on the types of taxes and economic
taxation may be the
conditions, revenues can be unpredictable/ fluctuate.
fairest way to generate
the required funds. •        Can be inequitable depending on the type of taxes
used and the level at which they are collected.
•        Resources for health
increase over time as the •        In states with weak governance and accountability
economy grows. being able to control general revenues can lead to
favoritism and corruption.
•        High degree of political
accountability in
democratic political
systems through regular
legislative budget
processes.

•       State-funded systems
are relatively easy to
manage

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 Pros and Cons of using social insurance to fund health systems

Pros Cons

•       The social contract •       Scheme does not cover everyone; particularly in

structure can increase low-income countries SHI mostly only covers workers
citizen’s willingness to in the formal sector and only pools the health risks of
pay, as there is greater its enrollees
trust that benefits will be
•       Requires both adequate fiscal capacity of the
delivered
government and popular acceptance.
•       Social insurance
•       Can result in higher real cost of labor due to higher
schemes have the
social insurance premiums
greatest potential for
providing effective risk •       Though SHI contributions are often technically not
protection, particularly in “taxes” but “premia”, they may look and feel like taxes
high income countries to the public and suffer from some of the problems
which reduce the effectiveness of tax collection.

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 Pros and Cons of using private insurance to fund health systems

Pros Cons

•       Private insurance will mobilize •       Competitive private insurance is very prone to risk
resources additional to what selection. This occurs when insurers are able to favor
governments can generate. enrolling the healthier groups in a population, leaving
those more likely to be sick and incur higher health
•       When people can chose their expenditures to have their needs met in other ways.
own plan they may feel more This gives the impression that private insurance is lower
empowered and willing to pay for cost or more efficient when it may be that it is simply
health care insuring those with less need. Conversely, private
•       Those with different attitudes insurers may also charge very high rates to those more
and values, including those at likely to be sick .
different income levels, will prefer •       This method offers less risk pooling than social
different health care plans. A insurance or general revenue financing; groups with the
competitive market for private highest risks and costs are typically excluded
insurance should then respond by
offering a range of insurance •       Competitive private insurance is also prone to having
plans. This improves consumers’ higher operating costs. Competition requires marketing
welfare. and other expenses

•       Private insurance poses a complex set of regulatory

and management issues to the government, which
require high levels of analytical competence and
political integrity that many countries do not have

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