Financing Health Care SA407 User Charges

1. Financing Health Care SA407User Charges Wednesday, 21 October 2009 Faisal Latif Miranda Perra

2. Overview • Key arguments of user charges • Various types of user charges • Implications of applying user charges to different health care services

3. Fixed PaymentConsumer contributes a payment on receipt of a particular health service which is fixed independently of the quantity of goods or service consumedMC=0 except for the first unit

4. Variable Payment If the payment that the consumer makes varies with the quantity of a good or service consumed, this will be referred to as variable payment. X * C = VC X =number of units of a service or good consumed C =cost per unit

5. Linear Pricing S=p.c.x S=total payment p>0 =fractional share • Co-payment or user fee • Co-insurance • Fixed plus Linear (F+L) S=F+ p.c.x F=fixed element MP> P of the first unit • Two-part tariff

6. Non-linear (full marginal price (FMP)) • Insurance Deductibles or Excess MP=0 once insurance starts to cover the TC • Non-linear (partial marginal price (PMP)) • Balance billing MP< TC

7. Contextual factors behind User Charges (Cost Sharing (CS) ) • Reasons cost sharing is employed • Instrument for promoting cost containment • Raising revenue • Contextual factors (country-specific) • Broad macroeconomic environment • Extent of population coverage (by a national health service) • Western Europe vs. CEE/CIS countries • Western Europe: minimal obligations for poorest individuals

8. Implications of User Charges (Cost Sharing) • Context: Rand Health Insurance Experiment (HIE) • Decreased utilisation of health services (Rice and Morrison, 1994) • ‘Necessary’ vs. ‘unnecessary’ utilisation • Rationale: reduce use of those services not ‘medically necessary’ • CS no selective effect (Lohr et al. 1986)

9. Implications of User Charges (Cost Sharing) • First Contact vs. Referral Services • Utilisation rate of primary care more sensitive to cost than referral services (more elastic) • Provider response • Providers will induce increase in intensity of referral care (due to decreased demand) • UMW Health & Retirement Fund • Introduction of co-payments • Physicians changed practice patterns to maintain income

10. Implications of User Charges (Cost Sharing) • Effect of CS on total health expenditure • CS does not ultimately contain costs • Why? Costs are primarily driven by supply-side factors • Paradox - lowest utilisation but highest HC expenditure – which country? Why? • Possible solution • Supply-side measures more effective mechanisms e.g. budgetary controls • Prescription drugs • Weak tool for cost-containment (Jönsson & Gerdtham, 1995).

11. Limitations of Cost Sharing (CS) • Information asymmetry • Heterogeneous health-service mix • Reduced equity in finance • Reduced equity in access & health status • Driven by supply-side • Policies required to address this • CS will only reduce utilisation, NOT cost containment • Considerable administration, information, economic and political constraints (Gilson et al., 1995)

12. Thank you for listening!Any Questions?