Health Care Financing Flashcards
What are the core functions of a health system?
- Financing – revenue collection, fund pooling, purchasing
- Provision – personal (dr/patient consultation) and non-personal (public) health services
- Underpinning these core functions are stewardship and resource generation (linked back into revenue collection)
Why is health care costing more/why is expenditure growing?
- Demographic Factors (population growth and distribution - ageing, youth, migration etc.)
- Economic Factors (influences on demand -> unemployment/poverty impacts; influences on supply -> more Drs and hospital)
- Health Technology Advances (treatment and diagnostics)
- Disease Patterns (New and re-emerging, increase in chronic disease, NCDs)
- Evolution of Health System (Expansion of services, cost control, improving efficiency)
- Political Factors (equity, policies for reelection, corruption)
Distinguish between the different options of public-private mix in the financing and provision of health care
• Financing vs. Provision
- Public finance and public provision
- Public finance and private provision
- Private finance and public provision
- Private finance and private provision
Stronger case for government intervention in financing as allows for more power in shaping health system for societal benefit
Socio-economic conditions mean private care will not replace public services despite arguments regarding efficiency of private sector
Define incentives
Explain how they are relevant to how healthcare providers are paid.
Any factor that motivates a particular course of action or encourages people to behave in a certain way (Generally for their own benefit)
- Disincentive: discourages behaviour
- Can create unintended behaviours
Relevant - because they can encourage providers to do more or less, impact on quantity and quality. Important consequences for healthcare expenditure.
Define Agency Theory and explain the role of incentives
Problem that arise under conditions of information asymmetry between two parties
Principal-agency relationship: principal wants agent to perform task to achieve their own objectives; agent bears the cost for the principals benefit
Interest of the parties are divergent: each actor seeks to maximise their own utility
Efficiency relies on perfect agents doing exactly as the principal would for themselves. Can create opportunities for distortion and risk that optimal level of care won’t be provided -> due to information asymmetry, moral hazard
Often need to use incentives so that agent acts in principals’ best interest
Describe two agency relationships in the healthcare sector
Patient – Doctor
- Patient requests Dr to act on their behalf, receives benefits,
- Dr. has own costs and seeks to maximise own benefit and minimise costs
- Info asymmetry - patient doesn’t; know appropriate steps
- Can create supplier induced demand - higher than optimal level of care
- Incentives required - intrinsic motivation, incentives to limit supply of non-essential treatment, co-payments
Agent – Third Party Payer – Doctor
- 3rd party wants cost-effective care
- Info asymmetry - only Dr knows level of care requires
- Dr does not bear cost and patient has reduced incentive to monitor Dr’s activities = moral hazard for SID or less effort
- Optimal level of care not provided - more or less
- Incentives required - system controls
What are some incentives for Providers - Doctors (Utility):
- Income (consumption)
- Leisure time
- Utility of family and friends
- Professional prestige
- Patient utility (intrinsic)
Factors that limit self-interest and encourage perfect agents include: • Well-informed patients • Peer review and profession regulations • Medical ethics • Financial incentives in contracts
Other Incentives in the Health System:
Patient: better health
Hospital (Provider): reputation; maximise productivity and income; minimise costs; quality of care
Insurance (Purchaser): profit margin (minimising costs); client income; reputation
Government (Purchaser): political aspects quality system and bread of coverage (linked to equity and welfare)
Describe the different types of payment mechanisms used to pay doctors and their resulting incentives
Fee-for-service – direct fee paid to Dr for each service provided
Advantage: direct incentive to increase services/effort
Disadvantage: can leads to supplier-induced demand or oversupply
Capitation – Payment per enrolee in given area
Advantage: strong incentive for efficiency (to attract patients), no incentive to oversupply or induce demand, good control of costs
Disadvantage: can create incentives for undersupply or “cream-skimming”
Salary – fixed payment every month
Advantage: No incentive to oversupply, no competition or cream-skimming, controls cost;
Disadvantage: No incentive to improve efficiency, can create incentive to reduce number of services/quality
Performance-based – links remuneration to desirable outcomes
Advantage: Increases provision of targeted services and quality of care;
Disadvantage: Can create gaming behaviours, lack of attention for non-rewarded services, difficult to monitor and enforce
Describe the different types of payment mechanisms used to reimburse hospitals and their resulting incentives
Line-item budgets – detailed budget for main categories of input
Limited incentive for efficiency and quality; simple but not flexible
Global budgets – lump sum to cover all expenses
Incentive for efficiency and cost-control; can lead to limiting/rationing
Payment per day – set rate per bed per day
Incentive to lengthen stay; can mitigate by different rates for patient type
Payment per case – rate per case/discharge
Incentive for efficiency/productivity; quality?; ‘cream-skimming’; Can adjust to diagnosis-related groups (DRG) to reflect cost and care – DRG creep and discharge for readmission
Define the principles of universal coverage
Universal coverage = providing all people with equal access to the health services they need, of sufficient quality, without financial hardship
Equity in access – equal access for equal need
Equity in financing – progressive (rich pay more), regressive (rich pay less), proportional (all pay the same); Compulsory participation essential
- Breadth – population coverage and access
- Depth – services available
- Height – costs covered
Identify the key financing mechanisms through which universal coverage can be achieved
- Tax-based systems (Beveridge Model) – generally progressive
- Social health insurance systems (Bismark Model) – generally progressive
Others – generally regressive so could not be main mechanism
- Private Insurance – generally regressive is principal form of funding but can be progressive. Can be implemented as principal; substitute (opt-in/opt-out); complementary (co-payment); supplementary (additional services); duplicate. Controversial for achieving universal coverage due to equity issues: tied to formal sector, risk rating and fragmented risk mean poor and high risk not covered, low coverage in LICs
- Out-of-Pocket – highly regressive. Patients pay directly. Eg. Low income - Jamaica, Haiti
- Community-based insurance – small pooled funds; generally regressive as flat rate and in poor communities, can raise awareness
- Donors – unsustainable
Describe the advantages and disadvantages of a tax-based system (Beveridge Model)
Funds from those paying general taxes collected by the government (including income tax, corporate tax and sales tax) used to finance health services for general population
Advantage: Pools money, can be highly progressive, no limitations to population coverage, no barriers for hard to reach groups, lower management costs
Disadvantage: Dependent on politics for allocation and collection, progressivity varies system to system
Example: UK
Define the principles of social insurance and contrast it with tax-based funding (Bismarck Model)
Typically operated by a public agency and financed through compulsory contributions from pay-roll from both employers and employees
- Generally progressive
- Example: Germany, Belgium
Advantage: clearly identified funds, preferable to taxes, reduced moral hazard from contributions, pressure from employers to keep premiums low
Disadvantage: dependent on size of formal sector (pooling and subsidization limited), employment tax disincentive for job creation, high management cost, possibility of adverse selection
Define progressive and regressive models of healthcare financing
Progressive model of financing – consumes a greater proportion of the income of the rich than of the poor
Regressive model of financing – consumes a greater proportion of the income of the poor than of the rich
