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Reforming Prudently Under Pressure Health Financing Reform and the Rationalization of Public Sector Health Expenditures Firas Raad, DPH World Bank Presentation MOH Conference, Ramallah, May 8, 2009 Key Messages of Report Public sector health financing is at a critical crossroads in the Palestinian Authority Financial sustainability severely compromised due to conditions of economic contraction and a ballooning of public sector health spending Prudent medium-term reforms to improve financial sustainability are necessary and can be undertaken in parallel to emergency management efforts Expanding social health insurance over the medium and long term requires certain economic prerequisites and enabling conditions Outline of Presentation Key health sector challenges Sector characteristics and underlying trends Financial sustainability and medium-term health insurance reform options Opportunities Challenges Summary conclusions Key Health Sector Challenges Conflict conditions and closure policies Fragmented institutional framework Unpredictable health financing and donor dependency Efficiency of public sector health expenditures Financial protection from illness and injury MOH management capacity constraints Maintaining good health status outcomes and increasing burden of chronic diseases Impact of Conflict Conditions Percent of Fatalities and Injuries Among Women and Children in Recent Gaza War 1,314 fatalities and 5,300 injuries 35 30 25 20 15 10 5 0 % children fatalities % women fatalities Source: United Nations, January 20, 2009 . % children injuries % women injuries Donor Dependency and Projected Aid External Support The international donor 160 140 120 100 80 60 40 20 0 Projected Aid 2005 2005 MOH External Budget Support 2007 2007 MOH External Budget Support community pledged US$7.5 billion to fund the Palestinian Reform and Development Plan over the 2008-11 period. In 2008, budget support to the PA reached about US$1.76 billion, nearly 80 percent more than 2007 - received as much as US$200 million in project aid. Continued donor support maybe impacted by international financial crisis Efficiency of Public Sector Health Spending MOH Wage Bill (US$ mil) 90 Public Sector Spending on Outside Referrals (US$ mil) 60 80 50 70 60 40 50 30 40 30 20 20 10 10 0 2000 2005 0 2000 2005 Headcount (percent of households) Catastrophic Health Spending 30 25 20 15 10 5 0 5 WBG 2007 10 15 20 Catastrophic Spending Thresholds Egypt 2007 Lebanon 2004/2005 Source: Input papers to World Bank Regional Flagship Report, 2009 25 Libya Incidence of Catastrophic Health Payments Percentage of Households Head Counts Using Total Expenditure (10 %) 14 12 10 8 6 4 2 0 1998 Source: Mataria, A. 2008 2004 2005 Year 2006 2007 Maintaining Favorable Health Outcomes, 2006 Countries Outcomes Life Expectancy Infant Mortality Under 5 Mortality 72 21 25 72 26 30 71 29 35 73 20 22 70 42 34 71 36 25 Jordan Lebanon Egypt WBG MENA Lower Middle Income Source: World Bank HNP Database, 2008 Underlying Trends Affecting Health Sector Unemployment Rate, 1999-2007 45 40 35 30 25 20 15 10 5 0 Deep Poverty, 1998-2006 50 40 30 20 10 0 1999 2000 2001 2002 2003 2004 2005 2006 2007- 2007Q1 Q2 WB Gaza Source: Palestinian Central Bureau of Statistics, 2008 1998 2001 2004 WB 2005 Gaza 2006 Macro-Economic Fiscal Framework 2006 Indicators Real GDP 1997 Market Prices (annual % change) Nominal Per Capita GDP (millions of US dollars Unemployment Rate (average in % of labor force) Recurrent balance in millions of USD (before external support and as a % of GDP) Overall balance in millions in USD (including development expenditures and before external support and as a % of GDP) 2007 2008 2009 Est. 2010 2011 Projection -4.8 -1.2 2 5 6.5 7.5 1,166 1,257 1,552 1,473 1,561 1,647 23.6 21.3 21.3 19.4 17.9 14.4 2007 2008 Act. Proj. 2009 2010 Projection 2011 -24.9 -26.7 -20.5 -16.9 -12.7 -9.5 -31.1 -28.7 -23.6 -25.7 -22.3 -19.7 Population Growth and Chronic Diseases WBG Population , 2010 70 to 74 3.9 mil WBG Population, 2025 70 to 74 60 to 64 60 to 64 50 to 54 50 to 54 40 to 44 40 to 44 30 to 34 30 to 34 20 to 24 20 to 24 10 to 14 10 to 14 0 to 4 Males Females Source: World Bank Demographic Projections, 2009 5.9 mil 0 to 4 Males Females Central Storyline of Health Policy Report Emergency environment in the Palestinian Territories since 2000 engendered significant and unsustainable imbalances in the financing of public sector health services Expansion in expenditures driven by increased MOH employment, an increase in average salary levels, greater spending on pharmaceuticals and specialty care referrals to outside providers Part of the financial imbalance also stemmed from policy decisions related to the design of the Government Health Insurance Scheme (GHI). Since its establishment as an extra revenue-generating scheme for the MOH, there has been a significant financial gap between insurance revenues and the cost of benefits This financial disequilibrium grew with the adoption of the PA voluntary health insurance program aimed at ameliorating social conditions following 2001 Insurees Enrolled by Category, 1999-2007 Numbers Enrolled in GHI by Category, 1999-2007 No. of Enrolled HHs 450,000 400,000 Free (Al-Aqsa) 350,000 Receiving Social Assistance Compulsory (govt) 300,000 250,000 Workers in Israel 200,000 150,000 Contract groups 100,000 Voluntary 50,000 20 07 20 06 20 05 20 04 20 03 20 02 20 01 20 00 19 99 0 Year Source: : MOH Health Insurance Directorate, WBG (Data for 2003, 2004, 2007 include estimates for Gaza) TRENDS IN MOH EMPLOYMENT BY CATEGORY 3500 3000 2500 Physicians 2000 Nurses 1500 Administration 1000 Paramedics 500 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Source: World Bank Public Expenditure Review, 2007 Expansive Trends in Outside Referrals Expenditures of Referrals US$ mil MOH Outside Referrals 35000 Expenditures on Referrals (USD 1000) 25000 No. of Referrals 30000 25000 20000 15000 10000 5000 0 1997 1998 1999 2000 2001 2002 Total Local Overseas Source: Ministry of Health, 2008 2003 2004 2005 20000 15000 10000 5000 0 2000 2001 2002 2003 2004 2005 Health Financing Functions and Objectives Functions Objectives Revenue collection raise sufficient and sustainable revenues in an efficient and equitable manner to provide individuals with a basic package of essential services which improves health outcomes and provides financial protection and consumer satisfaction Pooling manage these revenues to equitably and efficiently create insurance pools Purchasing assure the purchase of health services in an allocatively and technically efficient manner Source: Gottret and Schieber, Health Financing Revisited, World Bank 2006 Evolution of Health Financing Systems Low Income Countries Middle Income Countries Priv. insur Patient Out-ofPocket Social Insur Gov’t Budget Community Financing Source: Modified from A. Maeda Patient Outof-Pocket Social Insur Gov’t Budget High Income Countries Patient Outof-Pocket National Health Service Social Health Insurance Private Insurance Medium-Term Health Insurance Options Advantages Policy Option 1: Consolidate MOH as integrated national health service Policy Option 2: Maintain the MOH as the primary financing agency but strengthen the purchasing capacity of the MOH. Policy Option 3: Move towards establishing a social health insurance system based on mandated contributions and administered by an independent national health insurance agency Resource mobilization: Predominantly general tax revenues Fund management: Ministry of Health Purchasing: Internal payment reforms Resource mobilization: Predominantly general tax revenues, supplemented by co-payments, other fees Fund management: Ministry of Health Purchasing: Contracting providers, alternative payment methods Resource mobilization: Contributory system (payroll tax, fees, copayments) with general revenues for targeted subsidies Fund management: National Health Insurance Agency Purchasing: Contracting providers, alternative provider payment methods Disadvantages - Easy to implement - Provides universal access to health services - Difficult to reform budget process and introduce performance payments - Services limited to MOH facilities - Provides universal access to health services - More tools to introduce strategic purchasing - Expands choice of providers for patients (NGO, private) - Technical expertise and capacity required to manage contracts - Establishes an independent financing agency with better defined accountability - Potential efficiency gains through better purchasing - Expands choice of providers for patients - Expanding coverage difficult if economy poor and informal sector is large - Potential access problems for noncontributing members - Exacerbates informality if contribution rates are high - Cost escalation could become problem if purchasing capacity is weak National Health Service Approach Systems financed through general revenues, covering whole population, care provided through public providers Strengths Pools risks for whole population Relies on many different revenue sources Single centralized governance system has the potential for administrative efficiency and cost control Source: Gottret and Schieber, World Bank 2006 Weaknesses Unstable funding due to nuances of annual budget process Often disproportionately benefits the rich Potentially inefficient due to lack of incentives and effective public sector management Social Health Insurance Systems Systems financed mainly through payroll contributions, care provided through public and private providers Challenges Opportunities Additional health revenue source As a ‘benefit’ tax, there may be more ‘willingness to pay’ Removes financing from annual general government appropriations process Generally provides covered population with access to a broad package of services Often has strong support from population Can effectively redistribute between high and low risk and high and low income groups in the covered population Often serves as the basis for the expansion to universal coverage Source: Adapted from Langenbrunner, 2007 May not lead to more revenues overall May not lead to universal coverage, poor are often excluded unless subsidized by government Payroll contributions can reduce competitiveness and lead to higher unemployment Needs to be subsidized from general revenues Long start-up period, and can be complex and expensive to manage Often provides poor benefits for preventive services and chronic conditions Can lead to cost escalation unless effective purchasing and contracting mechanisms are in place Achieving Universal Coverage Takes Time 23 100% 80% Thailand 60% Colombia 40% Philippines Kenya Ghana 20% 0% 1990 1992 Source: Hsiao, 2005 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 High payroll contributions may encourage workers and businesses to go underground 24 Level of Informal Economy as Percentage of GDP M acedonia Bulgaria Serbia and M ontenegro Poland Slovenia Slovakia Hungary Czech Rep ublic Romania Source: World Bank , as cited by Waters et al. May 27, 2006 0 10 20 30 40 50 When Contributions Are Linked to Coverage: Many Have No Insurance 50 45 40 35 Estonia Russia Bosnia-Herzegovina Albania Lebanon 30 25 20 15 10 5 0 Percent Uncovered Source: Langenbrunner, 2007 25 Social Health Insurance: Complex Activities Require Skills and Take Time Collection 16 Pooling 14 Benefits Package Contracts Payment Systems MIS systems Claims Processing 12 Estonia 10 Romania 8 Kyrgz Quality Assurance 6 Albania Regulations 4 Russia Forecasting 2 0 Years to Fully Implement Source: Langenbrunner, 2007 26 Enabling Factors for SHI (1) 27 1. Sufficient level of income and strong growth prospects 2. Some margin exists to absorb increase in labor costs 3. E.g., South Korea (1977-1989) universal SHI coverage achieved, average annual per capita GDP growth rate =13.3% moderate labor costs prevent negative effects of SHI contributions on competitiveness, employment and tax evasion Limited size of the informal sector A large informal sector = narrow contribution base, many people do not participate in SHI Source: Rahola, 2005 Enabling Factors for SHI (2) 28 Relatively high rate of urbanization 4. facilitates the registration of SHI members and the collection of contributions Adequate institutional and administrative capacity 5. skilled staff and organizational system necessary to run health insurance funds, and regulate and supervise their activity 6. Good-quality health care infrastructure availability of quality health services is essential for encouraging population to participate and contribute to SHI 7. Existence of national consensus in favor of SHI values of the population: preference for equity so that the population accepts a high level of redistribution Source: Rahola, 2005 Policy Option 2: Maintain as MOH as primary financing agency but improve purchasing capacity MOH continues to own and operate its primary and secondary health service delivery system Introduces internal contracts with own facilities and pay for performance mechanisms to improve quality Strategic contracting with outside tertiary care providers (local and overseas) with improved purchasing capacity Funded primarily through general tax revenues and co-payment revenues Could be viewed as transitional option allowing for full SHI at a later stage with pre-conditions fullfilled Summary Conclusions (1) Palestinian health sector is confronted with a historically unique set of obstacles and challenges Impact of occupation, conflict and violence, economic closure policies, and access and restriction movements have stifled the capacity of the health sector to evolve and to adequately respond to the health needs of the population. A challenging economic environment, underlying demographic trends ,a changing epidemiological profile (a greater burden of chronic diseases) will continue to place pressure on the public financing of health sector priorities. The scarceness and unpredictability of public resources, both from local revenues and donor funds, will place a higher premium on raising the efficiency of public sector spending in the health sector. Summary Conclusions (2) There is no one ‘right’ health financing or health insurance model System financing must be sustainable --meaning that future economic growth generates sufficient levels of income for decent living standards Low to middle income countries face difficult tradeoffs between financing essential services and providing financial risk protection -prioritization is critical. Most countries are challenged to provide universal coverage, reduce fragmentation among risk pools, and improve purchasing efficiency. Critical issue is risk pooling, how it is done is really of secondary importance.