Which reforms are most likely to enhance sustainability?

Many who draw attention to the gap between what we currently spend on health care and other forms of social security and what we may need to spend in future conclude that the only way of bridging this gap is to increase reliance on private fi nance (Bramley-Harker et al. 2006). Th ey may acknowledge the shortcomings of private fi nance, but will argue that increasing private fi nance is inevitable if health systems are to be sustained in the face of future cost pressures.

We question the validity of this approach. In our view, two conditions are essential for securing the economic and fi scal sustainability of a health system.

First, the health system must generate suffi cient revenue to tackle its burden of disease and improve population health. Th is is both an economic and a fi scal concern. If a health system cannot raise enough revenue to improve health it may fail in its raison d’être as well as in its (secondary) role of providing the economy with a healthy workforce. Second, the health system should ensure that it provides value for money: the benefi ts of health care must outweigh the costs to society. Again, this is both an economic and a fi scal concern. Resources spent on health care cannot be spent on other goods and services – there is an

“opportunity cost” – so higher spending on health care should bring tangible benefi ts. Where it is diffi cult to generate more public funds for health care,

policy-makers will need to fi nd ways to spend existing resources appropriately.

We argue that equity is central to achieving both conditions; if spending on health care is to maximize health gain, policy-makers should ensure that health resources match health needs (rather than ability to pay for health care).

In Chapter 1 we suggested three potential responses intended to secure fi scal sustainability: make the most of existing resources by ensuring that expenditure achieves value for money; increase the level of publicly generated resources for health care; or lessen the health system’s obligations until they can be met within the current budget constraint. Our analysis highlights the importance of paying attention to the design of health care fi nancing. It shows how the way in which we fi nance health care has a strong infl uence on the health system’s ability to secure fi nancial sustainability. Importantly, while the fi rst two responses also contribute to securing economic sustainability, the third response is likely to undermine it. Here, we summarize some of the key points raised in Chapter 3 and discuss how diff erent reforms might contribute to economic and fi scal sustainability. We then consider what sort of health fi nancing system is best placed to address sustainability concerns.

Chapter 3 analysed health fi nancing-related reforms in the following areas:

• generating more revenue by maximizing the collection of publicly generated funds – for example, by lifting the ceiling on social insurance contributions and/or by centralizing responsibility for the collection of taxes and social insurance contributions;

• changing the mix of contribution mechanisms – for example, by increasing reliance on social insurance contributions, central tax or local tax or by expanding private fi nance through private health insurance and cost sharing;

• addressing fragmented pooling by lowering the number of pools and, in some cases, creating a single, national pool;

• restricting or expanding entitlement to public coverage and/or attempting to defi ne benefi ts (often through the use of health technology assessment (HTA);

• moving from passive reimbursement of providers to active purchasing of health services – for example, by separating purchasing from provision, by introducing strategic resource allocation or competition among purchasers and/or by reforming provider payment.

Centralized systems of collecting funds seem better able to enforce collection (in contexts where this is an issue) and may therefore be better at generating revenue than systems in which individual health insurance funds collect contributions.

In part, however, this refl ects the nature of the collection agent – tax agencies may be more diffi cult to evade (with impunity) than health insurance funds.

Centralized contribution rate setting may be resisted where funds have traditionally had the right to set their own rates, but it is not impossible, as recent German reforms show. It is an important step towards ensuring equity and may lower the transaction costs associated with risk adjustment, as the risk-adjustment mechanism no longer has to compensate for diff erent contribution rates. It may also help to address resistance to risk adjustment on the part of health insurance funds.

Some of the older Member States have taken steps to boost public revenue by broadening revenue bases linked to employment. Both France and Germany have increased their reliance on income not related to earnings through tax allocations – a move that is likely to contribute to fi scal sustainability in the context of rising unemployment, growing informal economies, growing self-employment, concerns about international competitiveness and changing dependency ratios.

In contrast, during the 1990s, many of the newer Member States of central and eastern Europe moved away from tax fi nancing and introduced employment-related social insurance contributions. Unfortunately, the economic and fi scal context in many of these countries is particularly unsuited to employment-based insurance due to high levels of informal economic activity and unemployment.

Consequently, governments have usually continued to rely on tax allocations to generate suffi cient revenue. In some cases, this has been seen as a failure of the social insurance “system”. However, it should probably be seen as an advantage. Th e potential benefi ts of creating new purchasing entities at arm’s length from government and from providers can be maintained, even if tax fi nancing continues. In fact, fi nding ways to safeguard tax allocations when new contribution mechanisms are introduced might be essential to ensuring suffi cient revenue and to addressing some of the limitations of employment-based social insurance.

Th e clear trend towards creating a national pool of publicly generated health care resources witnessed in newer and older Member States is a welcome one.

A single pool of health risks is the basis for equity of access to health care. It also enhances effi ciency by counteracting uncertainty regarding the risk of ill health and its associated fi nancial risk. In addition, minimizing duplication of pooling may improve administrative effi ciency.

Another welcome trend related to pooling is the move away from allocating pooled resources (to health insurance funds or to territorial “purchasers”) based on historical precedent, political negotiation or simple capitation towards strategic resource allocation based on risk-adjusted capitation. Th is move can address some of the inequalities associated with local taxation or collection by individual health insurance funds and is a major step towards ensuring that resources match needs and that access to health care is equitable.

Some Member States have introduced competition among purchasers (health insurance funds). Th is may seem like a good way to stimulate active purchasing.

In practice, however, the costs of this form of competition may outweigh the benefi ts due to the incentives to select risks that it creates. Evidence from Belgium, France and Germany shows how risk-adjustment mechanisms may weaken these incentives, but fail to eliminate them (van de Ven et al. 2007).

Th e move away from passive reimbursement of providers towards strategic purchasing of services also represents a step towards matching resources to needs and ensuring value for money. Health care providers are ultimately responsible for generating a large proportion of health care expenditure, so ensuring that their services are delivered equitably – at an appropriate level of quality and for an appropriate cost – is central to securing both economic and fi scal sustainability. However, in many Member States reform of purchasing has been underdeveloped. In some cases, purchasing agents have not been given suffi cient incentives or tools to attempt strategic purchasing. With regard to provider payment, the move away from pure FFS reimbursement towards more sophisticated, blended payment systems that account for volume and quality is promising. However, again, reforms have not always been implemented appropriately and more needs to be done, particularly in terms of linking payment to performance in terms of quality and health outcomes.

Several countries have made eff orts to expand population coverage. Consequently, most Member States now provide universal coverage. However, the scope and depth of coverage are as important as its universality, and the trend in some countries to lower scope and depth undermines fi nancial protection. Eff orts to defi ne the scope and depth of coverage should be systematic and evidence based to ensure value for money. Health technology assessment is beginning to be used more widely to assist in reimbursement decisions and defi ning benefi ts.

However, its application is still limited in many Member States. In some cases this is due to fi nancial and technical constraints. In others, implementation is limited by political constraints such as opposition from patient groups, providers and product (usually pharmaceutical) manufacturers.

Cost sharing has been introduced and expanded in many Member States and reduced in others. Although it may be used to encourage cost-eff ective patterns of use, overall there is little evidence of effi ciency gains and, where it is used to curb direct access to specialists, there is some evidence of increased inequalities in access to specialist care (as those who can aff ord the user charges have better access). Th ere is no evidence to show that cost sharing leads to long-term expenditure control in the pharmaceutical or other health sectors. In addition, due to the information asymmetry inherent in the doctor–patient relationship, patients may not be best placed to “purchase” the most cost-eff ective care.

Given that the bulk of health care expenditure (including pharmaceutical expenditure) is generated by providers, eff orts should focus on encouraging rational prescribing and cost-eff ective provision of treatment. One lesson from the reform experience is that cost sharing policy should be carefully designed to minimize barriers to access. In practice, this means providing exemptions for poorer people and people suff ering from chronic or life-threatening illnesses.

With careful design, cost sharing can also be used to ensure value for money.

Markets for private health insurance in EU health systems generally serve richer and better educated groups and present barriers to access for older and unhealthier people. Th ey are also often fragmented, resulting in weak purchasing power. Due to the fact that many of them exist to increase consumer choice (or to reimburse cost sharing), insurers have limited incentives to engage in strategic purchasing and link provider pay to performance. However, they may have strong incentives to select risks, to the detriment of equity and effi ciency.

In general, private systems incur substantially higher transaction costs than public systems and may therefore be accused of lowering administrative effi ciency.

Overall, we identify two broad reform trends: signifi cant eff orts to ensure equitable access to health care, particularly in the older Member States, and a new emphasis on ensuring quality of care and value for money. Four of the older Member States have taken important steps to ensure equitable access to health care by expanding coverage. Belgium and the Netherlands have extended statutory cover to groups previously excluded, while Germany is to make health insurance compulsory for the whole population for the fi rst time from 2009.

Th e French Government has changed the basis of entitlement from employment to residence in France and introduced a scheme (CMU) to ensure aff ordable access to statutory and voluntary cover. In addition, where private health insurance plays an important substitutive and/or complementary role in the health system (for example, Belgium, France, Germany, the Netherlands (prior to 2006) and Slovenia), government intervention in the market has tended to increase in recent years, both to ensure access to health care through access to private health insurance and to prevent any negative fi nancial implications for the statutory health insurance scheme. Increased intervention has taken the form of tighter regulation of the boundary between statutory and private cover (Germany), the introduction of risk-equalization schemes (Germany, Ireland, Slovenia), tax exemptions for insurers off ering open enrolment and community rating (France), obligations for insurers to off er open enrolment and community rating (Belgium, Ireland and Slovenia), obligations for insurers to off er minimum benefi ts (Germany and Ireland) and the provision of subsidized private cover for low-income groups (France). Other eff orts to ensure equitable

access include attempts to improve the design of cost sharing and attempts to make the allocation of resources more strategic.

In terms of health fi nancing, a new emphasis on ensuring quality of care and value for money is clearly seen in increased use of HTA, eff orts to encourage strategic purchasing and provider payment reforms that link pay to performance.

Health fi nancing-related reforms have been complemented by reforms aiming to ensure and improve quality in delivery. Th ese have not been covered in this report (which focuses on fi nancing), but key examples include: establishing institutions to develop indicators for measurement and monitoring of health system performance and quality; initiatives to encourage innovative and cost-eff ective approaches to managing chronic illness and preventive care; and eff orts to standardize clinical practice and encourage best practice. Many of the reforms that took place in the older Member States during the 1990s focused on controlling health care costs (OECD 1992; Saltman & Figueras 1998;

Mossialos & Le Grand 1999; Docteur & Oxley 2003; Oliver & Mossialos 2005). While countries are right to be concerned about addressing the problem of persistent defi cits in the health sector, focusing solely on lowering defi cits does not ensure economic sustainability because it may draw attention away from the underlying ineffi ciencies leading to fi nancial imbalance (WHO Regional Offi ce for Europe 2006). Several of the reforms introduced more recently are in part an attempt to undo the negative eff ects of prioritizing cost-containment over health fi nancing policy goals.

Th e reforms reviewed in Chapter 3 can be divided into three groups: those likely to enhance sustainability, those likely to jeopardize sustainability and those with uncertain implications for sustainability. Reforms likely to enhance sustainability include:

• greater use of central taxes to supplement social insurance contributions (to ensure suffi cient revenue);

• strengthening and enforcing the collection of funds (to ensure suffi cient revenue);

• enhancing pooling by lowering the number of pools or creating a single, national pool (to ensure that resources are matched to needs);

• strategic resource allocation based on risk-adjusted capitation (to ensure that resources are matched to needs);

• greater use of HTA in reimbursement decisions and defi ning benefi ts (to ensure value for money);

• reform of provider payment linking payment to performance, in terms of quality and health outcomes (to ensure value for money and to ensure that resources are matched to needs; however, see next paragraph).

Reforms with uncertain outcomes for sustainability include:

• increased reliance on local tax (may undermine eff orts to match resources to needs and to ensure value for money);

• competition among purchasers (may undermine eff orts to match resources to needs and to ensure value for money);

• provider payment reform in primary care (unless carefully designed, may not succeed in matching resources to needs or ensuring value for money);

• using DRGs to pay hospitals (unless carefully designed, may not succeed in matching resources to needs or ensuring value for money).

Reforms likely to jeopardize sustainability include:

• increasing reliance on social insurance contributions (unlikely to ensure suffi cient revenue in future);

• expanding private health insurance (unlikely to ensure suffi cient revenue or value for money, or to match resources to needs; some forms may put pressure on publicly raised revenue and/or undermine strategic resource allocation);

• introducing MSAs (unlikely to ensure suffi cient revenue or value for money, or to match resources to needs);

• expanding cost sharing and/or poor design of cost sharing policy (unlikely to ensure suffi cient revenue or value for money; likely to have an adverse eff ect on health outcomes).