The changing role of government in financing health care

The Changing Role of Government in Financing Health Care: An International Perspective

By Mark Stabile (University of Toronto) and Sarah Thomson (London School of Economics and Political Science)
National Bureau of Economic Research, September 2013 7. Implications for health system efficiency, costs, quality Lessons Learned What lessons can we draw from the evidence summarized above and what questions remained unanswered? In terms of collection, many countries are exploring new ways of generating revenues for health care to enable them to cope with significant cost growth. However, there is little evidence to suggest that collection mechanisms alone are effective in managing the cost or quality of care. First, the traditional classification of tax‐financed versus social insurance systems does not determine how countries organize health financing functions to achieve policy goals (the authors use a narrower definition of “social insurance” to differentiate it from “tax-financed” systems – DMc). The evidence available on the relationship between financing and outcomes suggests that health systems financed through social insurance (as opposed to general tax revenues) tend to be more regressive and have smaller tax bases. Some evidence suggests that financing through social insurance versus general tax revenues is associated with higher cost growth over time, although it is difficult, using such a broad classification, to separate collection mechanisms from other characteristics more often found in tax‐financed jurisdictions such as budget and price controls and quasi‐hard budget constraints. Public health care funding in tax‐based systems tends to track GDP more closely than in countries that collect funds through social insurance. Perhaps unsurprisingly, many jurisdictions are moving towards a diversity of funding streams (adding tax‐based funding to social insurance) to manage health care expenditure growth and maintain universality. Theory and evidence on cost sharing through standard user fees suggests that for the purpose of revenue collection it is not clear, given the administrative costs involved, that user fees are an optimal means of supplementing taxes and contributions in developed health systems. The evidence on value‐based cost sharing (using cost sharing selectively to encourage patients to use medication, services, and providers that offer better value than other options, rather than simply applying user fees across the board) suggests some efficiency improvements in use of care. European systems with competitive health insurance (historically only found in countries that use social insurance to finance health care) have multiple risk pools, which can lead to selection issues and inefficiencies. All have significantly improved their risk equalization schemes in the last ten years and many now have relatively sophisticated formulas that include health‐based risk adjusters. In spite of this, insurers’ incentives to select risks are substantial and there continues to be (largely circumstantial) evidence of risk selection and hence potential inefficiencies in risk pooling. In some cases such as Switzerland, the voluntary insurance market seems to exacerbate risk selection and it would make sense to segment these markets to avoid this behavior. Recent evidence from the United States offers two reasons for optimism on this front. The first is that risk adjustment continues to improve and there is evidence that more detailed data on use, coupled with restrictions on ability to change insurer, can significantly mitigate risk selection. As a result, there is likely to continue to be convergence across countries towards better risk selection strategies. Second, recent empirical evidence examining insurance choice by individuals in the United States has found that preferences, in addition to risk, are important determinants of insurance choice, so the welfare implications of adverse selection by individuals in many markets may be smaller than previously thought. Where purchasing is concerned, there has been some convergence among OECD health systems towards more use of market‐like mechanisms, particularly the adoption of DRGs to pay hospitals (keep in mind that DRG is a creation of our public Medicare program, hardly “market-like” – DMc). Some countries have also attempted to encourage hospital competition and, more recently, a growing number of countries have tried to link provider payment to performance. The evidence on hospital competition suggests that where outcomes are easily observable or targeted (such as wait times) hospitals compete on price and quality (wait times), leading to improved outcomes. In some cases improvements have been at the expense of quality measures that are more difficult to observe, suggesting that it would be useful to have further comparable, well‐defined measures of quality beyond wait times. However, where prices are set administratively, competition has improved productivity and quality. DRG payment also appears to have improved productivity and quality, although its effect on overall system costs is mixed. There is some evidence (mainly from the United Kingdom) of improved physician productivity and patient outcomes following the introduction of P4P, although the evidence also suggests a degree of gaming to maximize financial incentives. A number of the health systems we explore continue to use wait times as a source of non‐price rationing. The evidence on the effects of wait times on health outcomes is mixed, with more recent studies finding negative effects on patient health and readmission rates, and older studies finding little effect on health outcomes. The United Kingdom in particular, and to some extent Canada, have significantly reduced wait times by increasing volumes using forms of DRG funding loosely modeled on US Medicare and through targeted budgets. Wait times are therefore not inherent in tax‐financed systems but can be fairly successfully manipulated by policy levers such as targets, DRGs, and non‐price competition between hospitals. Unresolved Questions Our review has revealed some areas where there is a need for a greater evidence base. First, while efforts to be more systematic about defining the publicly provided or mandated benefits package have increased over the past decade, there is a lack of evidence on how effective these changes have been. Organizations such as NICE in the United Kingdom, the Canadian Agency for Drugs and Technologies, the German Institute for Quality and Efficiency in Health Care, or the French National Health Authority, have emerged in many countries in the last decade, showing how jurisdictions increasingly recognize the importance of economic evaluation of best practice and technologies. However, we found little evidence on the extent to which these bodies have achieved their goals and some evidence to suggest they struggle with implementation. Efforts in systems such as Canada’s to expand coverage beyond hospital and physician services, or to promote voluntary insurance through tax subsidies have been mixed. A combination of tax deductions and subsidies has resulted in high levels of voluntary private insurance coverage for non‐publicly financed services but these subsidies have led to substantial and poorly targeted tax expenditures and continued reliance on the firm as the provider of voluntary coverage. Attempts to provide public coverage selectively to older people have also been expensive, while reforms aimed at re‐targeting benefits based on income have lowered public costs and had some positive redistributive consequences. The countries we examine therefore provide evidence of the inefficiencies of tax subsidies and of inefficiencies associated with voluntary insurance alongside publicly financed coverage, but do not provide particularly helpful evidence on the efficient mix of public and p rivate finance. The past ten to fifteen years have seen high health care cost growth in many countries, including all those reviewed here, with average health care cost growth exceeding the average growth in GDP (Haigst and Kotlikoff, 2005). In considering the success of different health systems in controlling costs, the evidence suggests that while policies that effectively limit demand through rationing and fixed budgets appear still to be effective at holding down costs at a point in time, there has been a discernible shift in policies employed by the countries we review away from these types of cost containment strategies, and away from other strategies that simply shift costs to households, towards policies that focus more on the cost‐benefit ratio and efficiency, such as greater use of health technology assessment and activity‐based funding with administratively set prices. While there are high hopes that these strategies will produce a more efficient use of health care resource and, ideally, control cost growth, further research is needed to determine the extent to which these policies achieve their goals. http://www.nber.org/papers/w19439?utm_campaign=ntw&utm_medium=email&utm_source=ntw

Comment:

By Don McCanne, M.D. Although this paper from Canada and England is very heavy reading and frames some of the issues differently from what we might, nevertheless, the authors conclude that “while the United States remains an outlier among OECD countries, a number of policy changes across jurisdictions suggest significant convergence in the role of the state in financing health care.” When you read the nature of the improvements, they are quite meager compared to what we need, but they did come predominantly from the government rather than from the private sector. More than a convergence, we need a new infrastructure in the United States – a single payer national health program.

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