Finance Equity Comparison of Health Systems

Content

Abstract

Tables

Illustrations

Abbreviations

1 Introduction

2 Finance Related Health Equity
2.1 Equity and Fair Financial Distribution in Health Systems
2.2 Equity Concepts – Revisited
2.3 Health System Financing Process
2.4 What Types of Models Can Be Distinguished
2.5 What financing models can be clustered
2.6 What models are applied and where
2.7 Equity in health care finance
2.8 The Redistributive Effect of Health Finance
2.9 The Kakwani Index

3 Findings and Evidence – WHO Country Rankings
3.1 Health Performance and DALE Ranking
3.2 Finance equity and redistribution

4 Public Health Impact and Proposed Actions

Literature

Appendix
i. Finance Cluster per Country
ii. Statistics - Finance Cluster per Country
iii. Statistics - Kakwani Index vs. Ranking and Equity
iv. Methodenkritik
v. Public Health Relevanz

Abstract

In numerous political and theoretical discussions the restrictions in performance and service of health care systems are a constant argument. The debate on limited health resource availability and fairness of distribution leads to economic arguments on scarcity of funds, and efficiency of financing.

This paper focuses on the explanation of equity of resource distribution by focussing especially on financing health systems and how it affects equity in itself. It concentrates on an inter-country comparison emphasizing performance indicators, based on the WHR2000, and connecting them to health finance relevant numbers. Progressivity figures are used to highlight cross country equity differences.

The analysis will provide evidence about the financing method mix’ clusters and progressivity factor (Kakwani Index) influencing WHO DALE ranking. Regional and wealth perspectives are also looked at.

Conclusively simple correlations can be observed for example between the Kakwani Index and the DALE ranks i.e. the more progressive a health care system is financed the better it is ranked. But also regarding financing mix’ basic relationships can be found like social insurances leading to a better position contrary to the privately financed system mixes.

Overall the protection of the poor is obtained by designing progressive financing systems which are predominantly public financed. But it has also become obvious that the performance of health systems do not solely depend on their way of finance even though it can partly be explained by indicators used in this paper. The cross-country finance comparison provides the basis for further investigations by solidifying results expanding the model’s integration for example to educational levels. The use of a comparative scale or benchmarks like the DALE ranking is therefore indispensable.

Equity wise such a comparison is essential deriving politically required conclusions and serving as a decision base for health finance system design. It has been shown that publicly financed systems tend to be more equitable. Creating progressive schemes do also contribute to an equitable distribution of health and but also of wealth. One has not to forget to set priorities and these will factually largely differ between countries. In our understanding the political drivers cannot avoid determining guiding principles according to which the system will be designed. Therefore the present paper supports such an effort providing evidence for the future health financing systems.

Tables

Table 1: Healthcare finance mix in a regional comparison

Table 2: Definition of healthcare finance mix clusters

Table 3: Healthcare finance clusters per WHO region & income category

Table 4: WB income category and finance clusters

Table 5: Kakwani indicators for different OECD countries

Table 6: KI and Rank Index

Table 7: Rank Index, KI and Total Expenditure on Health

Table 8: Rank Index, KI and Total Expenditure on Health and Private Clusters

Table 9: Rank Index, KI and Total Expenditure on Health and Public Clusters

Table 10: Financial Cluster and Rank Quartiles

Table 11: Financial clusters and ranking into two halves

Table 12: Level of public finance on total health expenditure and ranking

Table 13: ORs Public Mix vs. Lower/Higher Ranking

Table 14: ORs Dominating Social Insurance vs. Lower/Higher Ranking

Tabl]e 15: ORs combining OOP mixes vs. Lower/Higher Ranking

Table 16: Level of public finance on total health expenditure and ranking

Table 17: Healthcare finance mix in a regional comparison

Table 18: ORs Dominating Private OOP-Payments vs. Lower/Higher Ranking

Table 19: ORs Private Mix vs. Lower/Higher Ranking

Table 20: ORs Dominating Public Tax vs. Lower/Higher Ranking

Table 21: KI and income categories (Stratified)

Table 22: KI without outlying points

Table 23: KI and THX GDP share of governmental expenditure

Table 24: KI and dominant public expenditure and GDP

Illustrations

Illustration 1: Healthcare expenditure in a regional comparison

Illustration 2: Healthcare expenditure according to World Bank country clusters

Illustration 3: DALE and government health care expenditure in % of GDP, 2000

Illustration 4: LE and Mortality against per capita expenditure trend with DALE Ranking

Illustration 5: Performance of health systems

Illustration 6: Overview of per capita spending in the European Region

Illustration 7: Finance triangle for mainly public financed countries

Illustration 8: Finance triangle for mainly private financed countries

Illustration 9: Lorenz curves as analysis basis for progressivity in a health system

Illustration 10: Overview of per capita spending in the European Region

Illustration 11: Per Capita Expenditure on health in US$ and DALE Rank

Illustration 12: Income and Concentration Curves for 5 African Countries

Abbreviations

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1 Introduction

In numerous political and theoretical discussions the restrictions in performance and service of health care systems are a constant argument. The debate on limited health resource availability and fairness of distribution leads to economic arguments on scarcity of funds, and efficiency of financing. Both theory and the political environment oppose difficulties in dealing with the subject of limited resources.

However health is being highly valued, the argument is somehow blocked. Politics seem to have no solution at hand which would find a majority. At the end of the day the question will always turn around equity and the fairness of the financial distribution which are both central requirements for a performing health system. In this paper the inequality of health services through its lacking equality of financial contribution will be the main focus.

This paper will focus on the explanation of equity of resource distribution by focussing especially on financing health systems and how it affects equity in itself. It will concentrate on an inter-country comparison emphasizing performance indicators and connecting them to financially relevant numbers. Progressivity figures will be used to highlight cross country equity differences.

Therefore, we will firstly lay down the theoretical background of what equity is and how health systems are being financed. We will then introduce the indicators allowing a health system comparison from a financial equity perspective. Based on these, the next step will consist of using the WHO’s¹ DALE² ranking as basis to proceed to a cross country equity analysis.³ We will also introduce clustering of primary health system financing methods allowing an improved oversight and analysis of outcomes. A conclusion will be drawn on the consequences for health systems and their way of financing mainly stressing public and private finance aspects. Findings will be discussed, formulating further drawbacks and learnings from low income⁴ countries which can be used for the discussion in the countries with high funds availability. Wrapping-up the discussion will lead to conclusions on financing health care mixes more equitably.

The below graphs illustrate how differences in regions call for a more in depth analysis of equity and how the respective systems are being financed.

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Illustration 1: Healthcare expenditure in a regional comparison⁵

It becomes evident that in the various regions around the globe, expenditure on health largely depends on the availability of funds in general and thus also seems to go along with the level of development of a country. Seen the country’s region it would seem to influence performance of a health system in a country and also hints at an inequitable distribution of health overall. This fact is furthermore underpinned by the average per capita expenditure on health per region which is in the European region approximately ten times higher than in the African or than in South-East Asia. The differences in the level of health expenditure are not the sole explanatory factor of health inequalities but are a thorough driver and these comparisons will be one of the leading threads of our discussion. What we will attempt is an unorthodox comparison of the published WHO health system performance ranking⁶ and put it in relation to finance equity concepts.

The same numbers represented by the World Bank regions show an even more pronounced picture. Whilst the average health expenditure on GDP varies only slightly (with the exception of the OECD countries) the per capita health spending differs substantially.

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Illustration 2: Healthcare expenditure according to World Bank country clusters⁷

We would expect that the health level or the performance (expressed in DALEs) of a system would be accordingly higher if the funds employed are also higher. But in reality it is again not so easy and the inequities can only partly be explained by per capita payments or the health cost ratio on GDP. Hence the discussion in the paragraphs below where the influence of progressive financing and governmental versus private financing will be further analyzed. We will especially see that private financing and a respective progressive distribution tend to lead to the ranking differences and are thus determinants of a performing health system. However, the observed relative reduction is stronger in the less developed areas of the world. This would actually hint at the fact that the richer countries have reached their efficient level of expenditure and additional resources will not lead to the same rate of reduction in both morbidity and mortality rates i.e. lead to higher DALE rankings. Some explanations will be proposed to underline the above hypothesis. Though the focus on finance equity which aims at a comparison of systems and of conceptual viewpoints in order to prepare adequate public health decisions.

This being said we will conclude that a very high share of health care expenditure in relation to GDP does not necessarily lead to higher ranking in terms of DALEs. Astonishingly, above the fitted curve⁸ in the below graph the largest cluster of countries with high levels of DALEs spends nearly four times less on health, related to GDP, than the highest ranked country cluster.⁹

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Illustration 3: DALE¹⁰ and government health care expenditure in % of GDP, 2000

To finalise our introductory comments on inequities the below graph unifies facts that will be, at least partly, explained further below. Generally speaking, there is a trend that the countries with the highest amount per capita expenditure are also better off and demonstrate a better health system performance according to the DALE ranking. But also with respect to child mortality rate or regarding life expectancy at birth it seems that there is some correlation between the rank and none the last with per capita expenditure. This on itself would also indicate a direct correlation, and inequity, between expenditure and a well set up finance system. However things are not as straight forward and the analysis on financing of health systems will indicate a more differentiated view. Again this in itself is not a big surprise but it clearly shows that these subjects require a more in depth analysis none the last on the financing side.

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Illustration 4: LE and Mortality against per capita expenditure trend with DALE Ranking¹¹

As just mentioned, the above illustration hints at the relation between expenditure in general and inequitable health overall. Albeit this eminent thread, the main focus of this paper will be explaining facts by comparing countries’ performance mainly from a financing perspective in order to provide conclusions on equity overall.

In this context, the oftentimes cited relationship between GDP and total health expenditure per capita requires mentioning. It indicates that there is a positive correlation between both. Increasing Total Health Expenditure per capita will lead to a raise in GDP thus concluding that there needs to be minimal health expenditures leading to wealth and thus more equity also in the terms discussed so far. What this correlation lacks is providing an effective proposal how to further explain this inequity. What it disguises is that with a higher GDP there is also higher expenditure overall and thus not only health expenditure therefore other influencers would have to be looked at. One of these could factually be the way how health systems are being financed from where effective measures can be derived how equity can be improved or reached.

Above all there are also the MDGs¹² for the financing of health care systems, which do extend the MDGs focus on outcome indicators. They attempt to quantify some of the rates being discussed in this paper and define the following targets:

- “Countries are to raise their level of tax revenue to at least 20% of their GDP;
- public health expenditure (including government and donor finance) to be at least 5% of GDP;
- government expenditure on health to be at least 15% of total government expenditure;
- direct out-of-pocket payments less than 20% of total health care expenditure;
- expenditure on district health services (up to and including Level 1 hospital services) at least 50% of total public health expenditure, of which half (25% of total) should be on primary level health care;
- expenditure on district health services (up to and including Level 1 hospital services) at least 40% of total public and private health expenditure;
- a ratio of total expenditure on district health services in the highest spending district to that of the lowest spending district of not more than 1.5.” ¹³:

It goes without saying that these indicators would only supplement others like immunization coverage but it provides a good basis for enquiries. Looking at the pro poor dimension one could add a ratio that deals with an equitable distribution i.e. progressivity of income after health care expenditure which will be discussed in later chapters of this paper by using the Kakwani index.

Thus the paper will firstly lay down the theoretical background of what equity is, and how health systems are being financed. A concept allowing health systems comparison with respect to their equity will then be introduced. This will then lead to the evaluation of countries from the WHO Health Report visualising findings and criticizing “simple” rankings. Thereafter an assessment will follow of how those differences in ranks can be explained by the different ways of health system financing. A conclusion will be drawn on consequences for health systems and their way of financing.

A first analysis part investigating the question about regressivity of redistribution will follow. What will be looked at is the Kakwani index and verifying whether it has a direct effect on the WHO’s DALE ranking. This area will be combined with the question of what health care finance mix those countries have in order to deduct the influence on performance. Health finance mix clusters will be introduced aiming at an improved overview and also linking it to the rankings. In order to finalise this section it will also contain a discussion of how wealth of countries (i.e. linking it to the World Bank segmentation of countries) influences the ranking.

The second part of our analysis will mainly focus on the financing method of a country. Thus it will further differentiate the first part by refining it with the detailed elements of health care systems financing according to the elements being defined in Chapter 2.5 . This provides a solid ground for the conclusive part giving recommendations how health care finance system can be designed in order to increase performance and in the current case raise in DALE ranks. Furthermore we will eventually be able to produce drawbacks and learnings from low income countries. These can be used for the discussion in the countries with high availability on funds, and where for example very little rationing occurs.¹⁴ Leading to an overall more equitable distribution of funds and as such to overall better health levels and disease outcomes.

2 Finance Related Health Equity

2.1 Equity and Fair Financial Distribution in Health Systems

One of the most important determining factors in a health system is that the financial contributions are equitably distributed. Besides the other dimensions WHO defined as performance drivers, it is assumed that the financing system has a substantial influence on both performance and implicitly in our discussion also on equity. The main performance drivers of health systems are schematically represented below¹⁵. In this paper we assume that finance equity is a substantial driver for a well performing health care system, knowing that there are other influencing factors as well.

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Illustration 5 : Performance of health systems

Thus the focus of the discussion on the finance subject knowing that the other elements play an equally important role. Chapter 2.3 will look at more detailed financing issues focussing on financing methods and explaining the redistributive effects of financing and will introduce the Kakwani Index. First of all we will now pursue with a critical discussion of egalitarian concepts and thereafter expand to the more specific subject of equity in health care finance. The reason for this discussion is that those concepts are oftentimes misunderstood or misused and would allow in principle to develop structured finance strategies for health systems.

2.2 Equity Concepts – Revisited

In the light of any discussion about this subject it is worthwhile aligning the background on equity. Concepts are often mixed and accidentally integrated into the political discussion, or even misused where need be.

Every person defines equity for himself and below the attempt is being made to assemble and present the most important philosophical concepts in an overview chapter. Equity is being differently interpreted by poor and by wealthy people.¹⁶

However the below notions of social justice should apply generically and will support the further discussion.

A first emphasis needs to be made on the variance between altruism and equity. Whereas the first one relates to a notion of caring the latter is linked to social justice. Thus talking about caring means that one can determine its level of preference and it is therefore possible to define a utility level. In principle such a definition allows to pursue an economical discussion about need. But “need” in this respect is only to be defined with difficulty.¹⁷ An individual prefers that health care is being received and is prepared to sacrifice resources that will ensure it, or, derives utility from the act of providing health care.¹⁸ Both ways imply that a certain part of income is attributed to health care hence this allows to talk about efficient resource allocation and Pareto optimal redistribution. ¹⁹ On the other hand equity relates to the concept of social justice from which a set of principles can be derived. The interest of individuals might however negatively influence the realisation of this perspective. For the discussion in this paper the mentioned notions play an essential role. Firstly, distributional decisions regarding health care ought not to be influenced by cost arguments. The important element is that the distribution occurs equitably. Secondly, a conflict between efficiency and equity is immanent which makes political decisions even the more difficult. Fighting rare diseases is not cost efficient, also not from a distributional perspective, but will certainly lead to an improvement of a probably deprived part of society. Thirdly, the precise standpoint of care will influence, because it is not the same, if one talks about the absolute level of medical care consumption or for example the deviation from the mean.²⁰

One can conclude that, following the above argumentation thread, equity has to be analysed independently from any distributional aspect influenced by altruism. There are several theories of social justice that can be applied to health care in order to explain why this is as such²¹. Hereunder a focus will be laid upon the libertarian and egalitarian theory because these are most frequently used in this context.

Later we will see how the above three elements will influence the political discussion and why they play a role in comparing health system and their financing.

2.2.1 EGALITARIANISM AND HEALTH

According to egalitarianism, the preferred solution is the one with the most equal distribution of the goods to be distributed. This also implies that everybody gets an identical share and should have the same health status. This way of arguing is picked up by initiatives like “health for all” and finds a reflection in the Alma Ata Declaration.²² But it can also be used in the discussion we will pursue later on public vs. private health financing.²³ Such a principle also calls for a reduction of segmentation of health care systems, i.e. equal access to health for the rich and the poor by an equal share of financing covering the same health care level and avoiding catastrophic expenditure for both.

Health care is not the sole determinant of health and can therefore not be expected to lead to an equal distribution of health.²⁴ Literature also argues that individuals can not always influence their health situation, thus society should compensate for such disadvantages. However in reality such limits are hard to define.²⁵ Limited to health care financing and not delivery, this way of thinking could though be helpful in determining equality e.g. Smokers should be charged an annual premium in order to still receive the same treatment as non-smokers.²⁶

It is perilous to argue only in terms of equality because this might lead to an increased expenditure in health care without talking about priority setting within a set budget, and avoiding the argument that efficiency in health care distribution and financing can be understood as maximising health overall.²⁷

Often health care resources are said to be distributed according to need. Academics and politicians argue that people with an equal need should be treated the same way and the ones with a greater need are being treated favourably compared to the ones with less need. Should people most in need be the same as the ones who benefit the most from health care then equity and efficiency targets are met. ²⁸ In practice, distributing funds according to need is often difficult and might occur without any reference to clinical practice and the fairness of distribution ought to be questioned. Furthermore the definition of need is crucial and it will take the next section to highlight the aspects relevant for the current discussion.

2.2.2 ALLOCATION ACCORDING TO NEED

The notion of need uses several perspectives. It is important to have a common understanding of it because it plays an important role in priority setting and not the least when geographical resource allocation is being discussed. The most common definitions²⁹ will be briefly explained hereafter.

The first one relates to an equation where the sickest have the greatest need, i.e. the degree of severity or the burden of disease determines the need and thus will receive the highest level of care. Medical limitations or effective treatments are implicitly ignored.³⁰

The second definition relates to a specific target. It combines input with output where for example a health measure will lead to a health objective determined by society which deems it worthwhile with a previously calculated efficacy. Therefore need only exists when both conditions are met. Again this definition provides little guidance on priority settings on for example how much health care should be allocated e.g. a society determines the number of QALYs that will lead to an intervention.

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¹ World Health Organization (2000)I

² The WHR measures performance with five indicators: Overall health outcomes, inequality in health, overall health system responsiveness, inequality in health system responsiveness, and fairness of financing. Within this context the DALE rank chosen is based on “Performance of the Level of Health”, thus integrating only on the average health status in disability-adjusted life expectancy (DALE). These values carry estimates of uncertainty not presented in this paper. For more details reference to the WHR 2000 is made.

³ It needs to be mentioned that in its function as efficiency measure the indicator already contains health expenditure this has to be taken into account for the latter analysis work. Furthermore, it we assume in our work that the performance measure explicitly expresses equality. Knowing that theoretically there is no consent.

⁴ Here the World Bank’s country terminology is applied.

⁵ WHR 2007: National Health Account figures of 2004

⁶ Seel also Evans (2002) for details on how the ranking has been established.

⁷ WHR 2007 uses National Health Account figures of 2004

⁸ The fitted curve (i.e. linearity) in this example can be questioned and mainly supports the illustration of the example.

⁹ Also see for example Mackintosh and Koivusalo (2005), p. 9

¹⁰ DALE = Disease Adjusted Life Expectancy; being used in the WHR 2000 as performance measure (also Footnote 2).

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¹¹ Based on the World Health Report 2006

¹² Millennium Development Goals

¹³ The list is extracted from The Global Health Watch p. 85

¹⁴ See e.g. Schopper et al. (2002) where rationing is being explained in the case of Switzerland.

¹⁵ Derived from Murray and Frenk (2000), p. 717 and following

¹⁶ Pereira, Manoharan and Taylor(2000), p. 2

¹⁷ Folland et al. (2004), p. 14

¹⁸ Mooney (1986)

¹⁹ Culyer (1983)

²⁰ This paragraph is largely derived from the discussion in Wagstaff, Doorslaer (1998), p. 6 and following

²¹ For further detail on relevant theories refer to Gillon (1986)

²² Global Health Watch (2005) p. 59 and following

²³ Compare Chapter 3.2.2 – GWH p. 62 and Segmentation of health care systems p. 63

²⁴ Culyer and Wagstaff (1993), p. 432

²⁵ Le Grand (1982)

²⁶ Le Grand (1987)

²⁷ To get a full insight into the argument refer to Culyer and Wagstaff (1993)

²⁸ Culyer (1989)

²⁹ See also Hurley (2000) for more detail

³⁰ Criticism used in Culyer and Wagstaff (1993), p. 453