Health Financing Revisited: A Practitioner’s Guide
The World Bank
May, 2006

This report provides an overview of health financing policy in developing countries. It is a primer on major health financing and fiscal issues, intended to assist policy makers and all other stakeholders in the design, implementation, and evaluation of effective health financing reforms. The health sector is an extremely complex one, and reformers must be prepared to deal with its complexities when designing and implementing health policy reforms.

Learning from high-income countries

High-income countries have a rich history of health financing reforms as their systems have evolved from community-based voluntary insurance arrangements to formal public insurance funds to social or national health insurance-based financing systems. Nearly all high-income countries, with the exception of the United States, have achieved universal or near universal health coverage. The tax-financed systems have been in place for some time, the social insurance systems more recently. Political will was critical to achieving universal coverage, along with economic growth. As most high-income countries have achieved universal coverage, recent reform activities have tended to focus on efficiency gains through purchasing arrangements, rather than on revenue collection and pooling.

Although high-income countries operate in very different contexts from low-income countries, their experiences furnish some lessons for lower-income countries:

* Economic growth is the most important factor in the move toward universal coverage.

* Improved management and administrative capacity is critical in expanding coverage, as is strong political commitment.

* For low- and middle-income countries transitioning to universal coverage, general revenues and social health insurance contributions are the two principal sources of public funding. Both accumulate public revenues into one or several pools. Because the critical issue is pooling, whether a social health insurance or national health service system is ultimately chosen is of secondary importance.

* Voluntary and community-based financing schemes can serve as tests for countries as they seek to expand the role of prepaid health coverage schemes.

* Broader risk pooling mechanisms, instead of fragmented, smaller risk pools, can contribute significantly to effective and equitable financing of health coverage.

Products and services must be evaluated for their effectiveness and cost-effectiveness within the context of particular countries’ coverage systems. To facilitate the affordability of such efforts, cooperation among similar countries should be encouraged, possibly led by one or more international organizations.

http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/EXTHEALTHNUTRITIONANDPOPULATION/EXTHSD/0,,contentMDK:20200211~menuPK:376811~pagePK:148956~piPK:216618~theSitePK:376793,00.html

Comment:

By Don McCanne, M.D.

As developing countries design and implement their health financing policies, they can learn from high-income countries… “with the exception of the United States.”

Rite of Passage? Why Young Adults Become Uninsured and How New Policies Can Help
By Sara R. Collins, Cathy Schoen, Jennifer L. Kriss, Michelle M. Doty, and Bisundev Mahato
The Commonwealth Fund
May 2006

Young adults (ages 19 to 29) are one of the largest and fastest-growing segments of the U.S. population without health insurance: 13.7 million lacked coverage in 2004, an increase of 2.5 million since 2000.Young adults often lose coverage under their parents’ policies, Medicaid, or the State Children’s Health Insurance Program at age 19, or when they graduate from high school or college. Nearly two of five college graduates and one-half of high school graduates who do not go on to college will be uninsured for a period during the first year after graduation. Three policy changes could extend coverage to uninsured young adults and prevent others from losing it:
extending eligibility for Medicaid and the State Children’s Health Insurance Program beyond age 18; extending eligibility for dependents under private coverage beyond age 18 or 19 regardless of student status; and ensuring that colleges and universities require full- and part-time students to have insurance, and that they offer coverage to both.

http://www.cmwf.org/usr_doc/Collins_riteofpassage2006_649_ib.pdf

Comment:

By Don McCanne, M.D.

It has long been recognized that young adults are the largest and fastest growing group of the uninsured. As a result, policymakers in public and private sectors have been adopting changes designed to expand coverage of young adults. Some of those efforts have been identified in this report, and they include the specific policy recommendations listed.

Although we recognize that these policies would increase coverage, converting them into action on a widespread basis has been and will remain elusive. If you doubt that, look at the recommendations again and decide what rules and regulations you would need, how they would be enforced, and how they would be funded. Confirming the difficulties encountered, efforts to date to adopt these incremental changes have resulted in an INCREASE of 2.5 million in the numbers of uninsured young adults.

Incremental efforts have already been tested, and they have failed. Only fundamental structural reform will accomplish our goal of equitably-funded, comprehensive coverage for everyone. Policymakers need to abandon the path of incrementalism that is leading us to more uninsured, greater medical debt, and more barriers to care. A single payer program of national health insurance is the obvious solution. Can’t the policymakers find that path?

Health care reform to follow Socialist model until 2008
Hungary Around the Clock
May 23, 2006

Health care will operate in line with the Socialists’ plans until late 2007, when the Free Democrats’ preferences will take priority, according to an agreement outlined to the media on Monday by Free Democrat chairman Gábor Kuncze.

He said the ground work for converting to a competitive health insurance system will be completed by late 2007. The coalition parties will then examine whether everything is in place for introducing the Free Democrat model of several competing health insurers. The two parties have agreed to convert the National Health Insurance Fund into a shareholding company.

Kuncze said the coalition parties are working to build a system in which it will be irrelevant whether the state or private capital operates the health service. The essence, he said, is that patients will receive a higher standard of health care.

There are also plans to base health care contributions and service packages on a three-tier health insurance system. Patients will be protected against what Népszabadság calls the “jungle” of market competition by an insurance supervisory body.

http://www.caboodle.hu/index.php?id=12&no_cache=1&tx_ttnews%5Btt_news%5D=698&tx_ttnews%5BbackPid%5D=11&cHash=8cab2a67df

Comment:

By Don McCanne, M.D.

Market competition? Several competing health insurers? Private capital? Three-tier health insurance system? Converting the National Health Insurance Fund into a shareholding company?

As Hungary surveyed the various health care models in other nations, they decided to adopt the U.S. model – the most expensive, least efficient, least equitable, and most wasteful system of all, but one that richly rewards the private insurance industry.

The lesson from Hungary is that a democracy requires an informed plebeian input. Failing that, the government could fall into the hands of individuals who cater to those with money and power, such as those who have mastered the process of diverting health care funds away from health care. That scenario is all too familiar to us in the United States.

Whose fault is this? Our citizens will never fully understand the benefits of a publicly-funded and publicly-administered insurance program until we tell them. Let’s not be part of the problem by remaining silent.

Citigroup Smith Barney
Affluent Investor Poll
May 17, 2006

The cost of health care is a major concern for affluent investors, more so than quality of care available perhaps because investors believe they will bear the brunt of on going drug and insurance costs while they discount the probability of being subject to an on going need for doctor and hospital care. The national health care issues of greatest concern are the cost of prescription drugs, the cost of health insurance, and the cost of long-term care (with about half of all investors saying they are very concerned about each of these issues). Only about one in four express strong concern about the quality of care provided by doctors or hospitals.

Health insurance companies, pharmaceutical companies, lawyers, and the federal government all share some of the blame for what investors see as the problems in the nation’s health care system, with the largest shares naming attorneys (23%) and the federal government (21%) as most responsible. The most affluent group of investors are noticeably less likely than others to assign blame to health insurance companies or pharmaceutical companies, and are noticeably more likely to say that lawyers are a major contributor to the problems in the health care system.

Vast majorities would support any type of change to the current health care system, with most saying they strongly favor the idea of malpractice limits (56% strongly favor), allowing small companies and individuals to join together to purchase health insurance at better group insurance rates (69%), and allowing low and middle income workers to deduct the cost of health insurance premiums from their taxes (50%). Nearly as many favor easing restrictions on imported prescription drugs and establishing tax incentives for those who use high deductible health plans.

Affluent investors were also asked about the health insurance reform recently passed in Massachusetts, in which all citizens are required to have some type of health coverage. While two out of three overall express support for this type of plan, the most affluent do not necessarily feel that way. Those who have assets of $1 million or more are more likely to oppose this idea (46%) than they are to support it (43%).

http://www.smithbarney.com/pdf/pollMay06.pdf

Comment:

By Don McCanne, M.D.

Since the wealthy have greater political influence, it is important to understand their views of our health care system and its reform.

It is not surprising that affluent investors are not well informed on the problems with our health care system, as their biased views reflect those that are prevalent in the pages of the Wall Street Journal and other similar resources.

What is clear is that, like the rest of us, they do want affordable access to comprehensive care. The solutions they support fail to address the real cost drivers and will leave them facing ever escalating costs. Those costs will not be contained until we agree to adopt structural reform of health care funding that addresses the actual inefficiencies and waste in our system.

The problem is that the affluent do not know what they do not know. It is our task to educate them on the real problems and the various policy approaches available. It just happens that the most effective policies that would achieve their goal of health care value are the same policies that would achieve our additional goals of universality, comprehensiveness and equity. They need to understand that.

Amid War, Troops See Safety in Reenlisting By Faye Fiore
Los Angeles Times
May 21, 2006

(Staff Sgt. Matthew Kruger) looked around the job market, and it didn’t take long to figure out that leaving the Army held its own perils. Nothing offered him the financial security of his military job – especially the generous health coverage for his wife and three small children.

“We had nothing. We were scared,” (his wife) Maggie said recently… “We suddenly realized there was no way to take the kids to the doctor or dentist for any little reason, as we had been used to.”

For Kruger, who returned to a war zone for his third tour in December, the danger of losing his family’s health insurance was more real and immediate than the danger of dying in combat.

http://www.latimes.com/news/nationworld/nation/la-na-enlist21may21,0,3414020,full.story?coll=la-home-headlines

Comment:

By Don McCanne, M.D.

…. (silence)

Medicare Beneficiary Out-of-Pocket Costs: Are Medicare Advantage Plans a Better Deal?
By Brian Biles, Lauren Hersch Nicholas and Stuart Guterman
The Commonwealth Fund
May 2006

(Medicare Advantage) plans may be able to provide more benefits than traditional fee-for-service Medicare because the Medicare Modernization Act included provisions that set MA payments greater than per capita fee-for-service costs in every county in the nation. These extra payments to MA plans averaged over 11 percent ($800 per enrollee) in 2005.

The analysis reported here indicates that the benefit packages offered by MA plans often result in substantial out-of-pocket costs for beneficiaries in poor health: in more than 20 percent of the MA plans we examined, located all across the nation in 15 cities in 10 states, enrollees in poor health would have had greater out-of-pocket costs in 2005 than if they had been in traditional fee-for-service Medicare with Medigap Plan F. If not for the extra payments provided to MA plans across-the-board, this pattern could have been even more pronounced.

Even with the completion of the transition to fully risk-adjusted MA payment rates and planned improvements in the risk adjustment methodology, the incentives for plans to avoid enrollees in poor health are unlikely to disappear. Moreover, as increased pressure to control Medicare spending makes continuation of the current level of extra payments to MA plans more difficult to justify, the incentive to shift costs from healthy to sick enrollees will become stronger.

Issue Brief:
http://www.cmwf.org/usr_doc/927_Biles_MedicarebeneOOPcosts_MA_ib.pdf

KFF webcast:
http://www.kaisernetwork.org/health_cast/hcast_index.cfm?display=detail&hc=1743

Comment:

By Don McCanne, M.D.

The cruelest mechanism of containing health care costs is to increase out-of-pocket spending for those with the greatest health care needs. It is shocking to see that many of the private Medicare Advantage plans, in spite of being granted extra payments by the government, are shifting more of the costs to sick enrollees than they would have to pay in the traditional Medicare with Medigap program, despite the well-documented shortcomings of Medigap coverage. In contrast, the Medicare Advantage programs have lower out-of-pocket costs for their targeted market – healthy Medicare beneficiaries who use few services.

In the KFF webcast on the release of this report, Karen Ignagni, president and CEO of America’s Health Insurance Plans, supported repeal of the lock-in to allow patients the freedom to “vote with their feet” whenever their plans displeased them. Obviously, the greater success the plans have in placing a financial burden on sicker patients, the quicker they would exit thereby relieving the plans of the need to cover them.

Private health plan strategy is, and always has been, to insure the healthy and dump the sick. The private Medicare Advantage plans are no different.

And for this the taxpayers are rewarding them with extra payments?! Enough!!

Clinton warns Canadians against letting ‘finance tail wag health care dog’
By Angela Pacienza
The Canadian Press
May 15, 2006

Asked about the growing interest by some for a privatization of the health-care system, former U.S. president Bill Clinton said Monday night that Canadians should think long and hard before making any move.

But (at the inaugural World Leaders Forum in Toronto) Clinton said the last thing anyone would want to do is let the “health care finance tail wag the health care dog.”

He said America did just that and the system is a mess.

He said the U.S. spends 34 per cent of its health-care costs on administration, equalling $280 billion “to pay two million people to go to work every day for all the providers and insurers and play tug-of-war.”

“It is insane,” said Clinton. “It is a colossal waste of money. Don’t go down that road. Don’t do anything that will lead to increased administrative costs.”

http://www.canada.com/topics/news/national/story.html?id=bb96af6f-595b-406f-8ba1-115627805cc2&k=51462

Comment:

By Don McCanne, M.D.

Now President Clinton gets it. But he’s no longer president.

The important question: Does Senator Clinton get it? Or for that matter, do any of the other would-be presidents?

Science For Life: A Conversation With Nobel Laureate David Baltimore By Barbara J. Culliton
Health Affairs
May 16, 2006

(David Baltimore is the new president of the American Association for the Advancement of Science, soon-to-retire president of the California Institute of Technology, former president of Rockefeller University, and founding head of the Whitehead Institute at the Massachusetts Institute of Technology.
Baltimore shared the Nobel Prize in Medicine in 1975.)

Barbara Culliton: One of the questions is this: If the economists, the health policy people, and the health services research people could talk to the scientists, might we devise entirely new ways of approaching projects and problems?

David Baltimore: We might. It’s worth trying. Let me comment on one place where I think this is critical. We talk about universally available health insurance that would not depend on a person’s particular history but would provide health care coverage for everyone-the arguments that are made about this are arguments about availability, about cost. There’s another argument, which overwhelms all of those; it has to do with what the genomics revolution will produce in the future. The genomics revolution that we’re just living through is making it clear that we are all genetically hamstrung in one way or another. And the only way to treat people who have genetic diseases, and we all do, is to think about universal coverage. We can’t hold individuals responsible for their genetics. We must insure them nationally.
If we do hold people responsible for their individual genetics, then we will have a completely unacceptable level of discrimination. It’s inevitable, because insurance companies will say, I need to know your genetic constitution before I insure you. And they’re right.

Culliton: That is what the insurance industry does.

Baltimore: That’s what they’re about. That’s what they’re trying to do. That’s what they’ve always tried to do. And now we’ve given them this very powerful tool that could enable them to really discriminate. I think the implications of that powerful tool are that there should no longer be an insurance system that holds people responsible for inherited diseases, whether they be so-called Mendelian diseases, such as sickle cell or cystic fibrosis or Tay-Sachs, or complex diseases, such as cancer or heart disease.

Culliton: So that means you’d go to universal health insurance?

Baltimore: Absolutely, I think that it does.

http://content.healthaffairs.org/cgi/content/full/hlthaff.25.w235v1/DC1

Comment:

By Don McCanne, M.D.

“We must insure (everyone) nationally.”

Tinkering incrementalists, listen up!

The Dartmouth Atlas of Health Care
In the News
May 16, 2006

New Study Shows Need for a Major Overhaul of How United States Manages Chronic Illness

Staggering variations in how hospitals care for chronically ill elderly patients indicate serious problems with quality of care and point toward unnecessary spending by Medicare. Lower utilization of acute care hospitals and physician visits could actually lead to better results for patients and prolong the solvency of the Medicare program, according to a new study by the Center for the Evaluative Clinical Sciences (CECS) at Dartmouth Medical School.

Three issues drive the differences in the cost and quality of care, according to principal investigator John E. Wennberg, M.D., M.P.H.

“Variation is the result of an unmanaged supply of resources, limited evidence about what kind of care really contributes to the health and longevity of the chronically ill, and falsely optimistic assumptions about the benefits of more aggressive treatment of people who are severely ill with medical conditions that must be managed but can’t be cured,” said Wennberg.

The Dartmouth Atlas Project studied the records of 4.7 million Medicare enrollees who died from 2000 to 2003 and had at least one of 12 chronic illnesses. The study demonstrates that even within this limited patient population, Medicare could have realized substantial savings – $40 billion or nearly one third of what it spent for their care over the four years – if all U.S. hospitals practiced at the high-quality/low-cost standard set by the Salt Lake City region.

The new research is based on Medicare claims data for more than 4,300 hospitals in 306 regions, released today in a new database available at www.dartmouthatlas.org.

“The problem of overuse of acute care hospitals and medical specialists in the management of chronic illness is rapidly getting worse,” said Wennberg.

He points to finding that the resources per capita allocated to managing chronic illness during the last two years of life are increasing steadily each year. For example, the nation’s health care providers were using 13.6 percent more ICU beds in 2003 than they did in 2000. Physician labor used to manage chronic illness also increased substantially: 13.4 percent for medical specialists and 7.7 percent for primary physicians. The acceleration was greatest in regions that were already using the most care, so the gap between high and low rate regions grew greater over the four years.

Both doctors and patients generally believe that more services – that is, using every available resource such as specialists, hospital and ICU beds, diagnostic tests and imaging etc. – produces better outcomes.

Based on this assumption, the supply of resources – not the incidence of illness – drives utilization of the services. In effect, the supply of hospital beds, ICU beds, and specialty physicians creates its own demand, so areas with more resources per capita have higher costs per capita.

“This report should end the ‘more is better’ myth in health care,” said Donald M. Berwick, M.D., M.P.P., president and CEO of the Institute for Healthcare Improvement (IHI) and a leading national authority on health care quality and improvement issues. “The nation can do a lot to improve the quality and lower the cost of health care once providers, policymakers, payers and the public share an understanding that ‘more care’ is not by any means always ‘better care,’ and that new technologies and hospital stays can sometime harm more than they help.”

Press release:
http://www.dartmouthatlas.org/press/2006_atlas_press_release.shtm

>From the Executive Summary

The reallocation of resources from the acute care sector to create a population-based, community-wide integrated system for managing severe chronic illness is today only a thought experiment. It should become a national goal. Realizing the savings that better organized care can bring requires building community-wide systems of coordinated care. In most communities, such systems do not now exist. The benchmarks from efficient practice indicate that Medicare already invests more than enough money to build and maintain such a system. The problem is that the resources are now largely locked in by Medicare’s reimbursement policy. To meet their payrolls and amortize their debts, acute care hospitals are dependent on utilization; reduced utilization results in loss of income. In many regions the reduction in utilization required to meet efficiency benchmarks would have serious – indeed, devastating – consequences for acute care hospitals. Finding a solution will require payers, particularly Medicare, to develop new methods of financing care that provides a fiscal “safe landing” for hospitals and retained savings for use in building community-based systems for managing severe chronic illness. It will also require accountability for system integration. With proper reform of financial models, large group practice and integrated care systems should be able to provide this accountability for the populations they serve in regions where such practices exist.

Through economic incentives, existing large group practices might be persuaded to accept responsibility for organizing such care in regions where it does not now exist. Traditionally, hospitals have served as the focus for coordinating community resources. They are the only locus of organized care available throughout the United States; perhaps acute care hospitals could take on the mission of integrating providers into community-based systems for managing chronic illness.

Executive Summary:
http://www.dartmouthatlas.org/atlases/2006_Atlas_Exec_Summary.pdf

The full report (121 pages);
http://www.dartmouthatlas.org/atlases/2006_Chronic_Care_Atlas.pdf

Comment:

By Don McCanne, M.D.

Can you imagine the private insurance industry leading the process to reform the management of chronic illness? Our fragmented model of competing payers is not capable of promoting system integration. Not even Medicare has the clout to reorganize the health care delivery system.

If we had a single, publicly-administered national health insurance program, a Medicare-for-All, then we would be in a position to allocate our health care spending in a manner that would integrate our entire health care delivery system. If that would result in a savings for Medicare alone of $40 billion over three years, just think of how much that would save for our entire health care system. And that doesn’t even include the other savings possible though a single payer system such as reduction of administrative waste and efficiencies through negotiated purchasing.

This report makes it clear that action is mandated. It is difficult to see where we could begin without the crucial first step of establishing a program of national health insurance.